What is brokerage required by IRS to send regarding RMD on Inherited IRA?

Submitted by Elizabeth Rhymer on Wed, 2018-03-28 00:16

Schwab tells me that they are not required to submit anything to the IRS regarding RMD figures for my inherited (non-spousal) IRA. My new financial planner says this is not true, that they ARE required to send RMD figures to the IRS. Which is true?

Thank you!



Submitted by Alan - IRA critic on Wed, 2018-03-28 01:04

  • “Figures” is a vague term.  Schwab is required to report the year end balance of the inherited IRA on Form 5498 and that’s all. IRA custodians are not required to calculate the actual RMD for an inherited IRA or offer to calculate it. That information is only required with respect to IRA owners, not beneficiaries.
  • IRS Reg.  1.408-8 Q 9 addressing reporting of the actual RMD amount only applies to IRA owners.

Submitted by William Tuttle on Wed, 2018-03-28 02:16

  • Suggest to your new financial planner that they might read the IRS Instructions for Forms 1099-R and 5498. Specifically boxes 12a and 12b.
  • You may choose to complete these boxes, or continue to provide a separate Form 5498, or a separate statement, to report the information required by Alternative one or Alternative two, earlier.
  • As Alan pointed out they are not required to provide RMD amounts for Inherited IRAs and are not to check box 11 indicating an RMD is required.
  • Many IRA custodians do not report these amounts on their Form 5498s (I’ve never had one that does). They use a separate statement.

Submitted by Elizabeth Rhymer on Fri, 2018-03-30 16:06

Thank you so much for the replies. I didn’t see them right away; I thought I’d get a notice in my email. Anyway, there’s more information: When the Inherited IRA account was transferred into Schwab, they made a paperwork error and the account said the person I inherited the IRA from was my husband (who is still alive) rather than my mother. It was like this for years before anyone caught the mistake. My new financial planner thinks that Schwab will have reported the RMD on the wrong account.  I wrote her: Why is it so important what Schwab reported (or didn’t report) to the IRS about my RMD? Because if it were based on my husband’s age or my age or my sister’s age [she is 5 years older than me], either way I’ve been taking out either the correct amount or more than necessary. Isn’t that right? And she wrote: It won’t be reported on the right account.  Does this make any sense? She seems to think this error is could possibly cause a HUGH headache in the future.Thank you. 

Submitted by Alan - IRA critic on Sat, 2018-03-31 00:10

You should ask Schwab to re title the inherited IRA correctly, and correct as many incorrect prior reports as possible. Meanwhile, re check the amounts of your beneficiary RMDs which I assume are based on your age at the end of the year following your mother’s death. The divisor is then reduced by 1.0 for each successive year. If your sister factors into this, please advise exactly how. If your RMDs have been insufficient, then you need to make up the shortfall and file a 5329 for waiver of the penalty. If your distributions have been more than the correct RMD, then the only result is that you drew down the inherited IRA faster than needed. I do not follow at all the issue about the wrong account, unless you mean the incorrectly titled account. If there is another account involved here, will need the details about that one.

Submitted by Elizabeth Rhymer on Sat, 2018-03-31 21:45

Hi thank you for this information. When you say that I should ask Schwab to correct as many incorrect prior reports as possible, what exactly do you mean?  My sister and I had been designated as beneficiaries for my mother’s IRA, so my mother was entitled to take minimum required distributions over the joint life expectancy of herself and my older sister. My mother died after she was 70.5 and was taking RMDs based on this calculation. The IRA was split between my sister and me and I now take RMD’s based on this same calculation.  

Submitted by Alan - IRA critic on Sat, 2018-03-31 22:46

  • We are sort of working backwards here, and I need to get back to the very first transaction to fully understand the issues. Your mother died after her required beginning date (RBD). Whatever year this occurred, were separate inherited IRA accounts created for you and your sister by the end of the year following the year of your mother’s death? If so, then each of you would use your own life expectancy to determine your annual RMD starting in the year after your mother’s death. If these separate inherited IRA accounts were not created by that deadline, then each of your RMD divisors would be based on the OLDEST of the two of you. 
  • Your mother’s RMD while she was alive (assuming your mother OWNED that IRA and was not a beneficiary herself) was not affected by the non spouse beneficiary she named. Her RMD was based on her own age using the Uniform Table. Neither you or your sister would continue your mother’s RMD calculations. You would each use your own life expectancy (Table I) starting with your ages in the year following your mother’s death. The divisor for that year would then be reduced by 1.0 for each year thereafter. But if you separate account was not set up as indicated above, your RMDs would have to be based on your sister’s age. 
  • Now a titling error may have created RMD errors in addition to the above. Before going further, did you and your sister establish separate inherited IRAs by the deadline above?  If so, is her IRA titled wrong also, or just yours?
  • It will take awhile to identify all the issues. So as you reply to each question, that will generate more questions, since once an inherited IRA goes off the rails, there are several implications.

Submitted by Elizabeth Rhymer on Sun, 2018-04-01 01:00

No, I believe there was a delay in separating the IRA into two accounts and that is why my RMD is based on my sister’s age, the elder sibling. My mother died in March 1997 and it looks like the separation of the funds did not occur until March 1999. It is only my IRA that was incorrectly titled. My IRA was with AMEX at first and then was moved to Schwab. The error occurred at the time it moved to Schwab. 

Submitted by Alan - IRA critic on Sun, 2018-04-01 03:24

  • Based on this, you are correct that your RMD would be based on your sister’s age at the end of 1998. That divisor would be reduced by 1.0 each year with a minor adjustment in 2002 due to a change in the tables. If you have been taking RMDs since then and reducing your divisor by 1.0 each year, just stick with that going forward. On the other hand, if the divisor you are using is way off either way, you either have been short on your RMDs or have taken out too much. If you are short, then you need to make up the shortfall and that could be very difficult to calculate over that many years. One reason that you may be short is that a spousal beneficiary does not reduce the divisor by 1.0 each year, they re enter the table and use the actual divisor each year for their age. If Schwab thought you were a spousal beneficiary and provided RMD assistance, then your RMD was probably too small during those years. It will take alot of research to determine exaclty where you stand there.
  • The titling error needs to be corrected to indicate that you are the beneficiary of your mother. You will have to submit some documentation to them such as an AMEX statement or Form 5498 issued by Amex showing your mother’s name on your inherited IRA prior to Schwab. Other than the title, it is probably sufficient for Schwab to issue a revised statement or Form 5498 (whatever you received from them in January). It will probably only cause more issues if they were to revise prior years. Also, be sure that you have named your own beneficiary on this inherited IRA account.

 

Submitted by Elizabeth Rhymer on Sun, 2018-04-01 11:26

Thank you! This helps enormously and now I know how to proceed. Just a couple of followup questions:I don’t know anything about the “minor adjustment in 2002.” I have been reducing the life expectancy by 1 year every year and using that figure for my RMD. Should I have taken out more or less because of this minor adjustment? Less, I hope!Question: If Schwab thought I had inherited a spousal IRA, did they submit RMDs to the IRS?  FYI, Schwab never gave me RMD advice – I had another financial planner at that time who set up the distribution formula for me to follow based on my sister’s age/life expectancy.I suppose the reason my current financial advisor is concerned is that if Schwab thought I had inherited a spousal IRA, and she thinks Schwab reported RMDs, then the RMD has probably been reported incorrectly. This helps me understand where she’s coming from. And if Schwab does not report RMDs on non-spousal OR non-spousal inherited IRAs I don’t think there’s an issue.Thanks again for your help. I am enormously grateful.

Submitted by Alan - IRA critic on Sun, 2018-04-01 17:17

  • The 2002 adjustment resulted from a change in the tables due to improved mortality. RMDs were slightly reduced. In determining if you are using the correct divisor now use the current Table I for your sister’s age in 1998, then reduce the divisors by 1.0 for each year thereafter including 2009. While 2009 RMDs were waived your 2010 beneficiary RMD would use a divisor 2.0 less than your 2008 divisor. In other words, your 2018 divisor would be 20.0 less than your sister’s age 1998 divisor. 
  • Schwab would not have submitted RMD amounts to the IRS even if they thought you were a spousal beneficiary. The 5498 Inst indicate that this is only required once a surviving spouse treats the IRS as their own. Until then they treat the supposed spouse as any other beneficiary. Therefore, the concerns of your advisor are not justified unless of course Schwab went totally off course and treated the account as your own. No evidence of that from your description, so there should be no RMD issue unless the divisors you have been using are incorrect. If you find that the divisors are too high (RMD would be too low), then you should make an effort to make up the shortfall. But even then I would not go back any farther than 2010 at the most.

Submitted by Elizabeth Rhymer on Mon, 2018-04-02 22:56

Perfect – thank you!

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