Year-of-death RMD not taken, IRA distributed to beneficiary IRAs

Submitted by Jean-Luc Bourdon on Thu, 2019-05-23 16:01

My client’s mother passed away and left an IRA with 4 beneficiaries, including my client. There was an RMD due for the year-of-death for the mom’s IRA but the RMD was not taken before her death. The IRA custodian didn’t distribute the RMD after-death and distributed the IRA to four beneficiary IRAs. Therefore, the RMD can no longer be taken from the Mom’s IRA.

Had the IRA be taken from the Mom’s IRA after-death, it would be split among beneficiaries and reported on a 1099-R to each beneficiary using their SSN.
So, I wonder how to fix this.
Should the custodian reverse the distribution to beneficiary IRAs, take the RMD and redistribute the IRA to beneficiary IRAs? I’m not sure it’s possible.
Should each beneficiary take their share of the Mom’s year-of-death RMD? From a tax point of view, it would make the IRS whole since the RMD would be reported to each in an individual 1099-R anyway.
Should a form 5329 be filed?
Many thanks!



Submitted by Alan - IRA critic on Thu, 2019-05-23 16:48

  • There was probably not a distribution, but rather non reportable transfers to inherited IRAs for each beneficiary. Since this RMD is the year of death RMD, it can be taken in any combination the beneficiaries desire. With 4 beneficiaries there is usually one that wants to take a much larger distribution than the year of death RMD remaining. If so, only that one beneficiary can complete the RMD and the others do not have to participate. This can be done in any combination, but if the beneficiaries do not coordinate or communicate well, then they each should take their share and any beneficiary who takes their share will not be penalized if others do not take their own share.
  • Note that distributions from Mom’s IRA after her death are rarely allowed by an IRA custodian. Once complete data is submitted for a beneficiary, they will transfer that beneficiary’s share to a separate inherited IRA. Accordingly, the year of death RMD must come out of the beneficiary IRA. IRA custodians mostly require only 1 SSN per IRA, so no further distributions can be taken from mother’s account.
  • If she passed in 2018, then the year of death RMD is late and Form 5329 should be filed to get the penalty waived. Upon her death, the responsibility transfers  to the beneficiaries collectively. Therefore, all 4 should technically file a 5329, but those who do not participate in the year of death RMD usually do not.

Submitted by Jean-Luc Bourdon on Thu, 2019-05-23 17:57

That’s incredibly helpful.  Many thanks! From what I gather, the IRS would want the custodian to take the remaining post-death RMD from the owner’s IRA and report it to beneficiaries on a form 1099-R in their name and SSN, reporting their percentage in box 9a and using code 4 in box 7. If IRA custodians don’t allow post-death distributions, that doesn’t seem consistent with tax rules explained here:http://www.wolterskluwerfs.com/article/who-takes-decedents-year-of-death-required-minimum-distribution.aspx Thanks fo providing next steps and options for the beneficiary.  It certainly leads to the same outcome as what the IRS aims at. 

Submitted by Alan - IRA critic on Thu, 2019-05-23 18:54

The link provided under “Rules” is consistent with what I stated. The beneficiary is responsible for completing the year of death RMD, but not necessarily from the owner’s IRA account. The beneficiary(s) will have complied by taking that RMD from their own inherited IRA, and the 1099R will be coded 4 for a beneficiary distribution as stated. So all the client needs to do is determine if any of the others plan on taking a large enough distribution or perhaps a lump sum distribution from their inherited IRA. If so that beneficiary will satisfy the requirement for all of them. But if not, all the client will have to take their share (25%) of the year of death RMD from their inherited account, and the IRS will be happy. Client should file a 5329 if this is done after the year of death. The 5329 should be filed for the year of death year because that is the year the RMD was not completed. If that was 2018 and client has already filed for 2018, the 5329 can be filed by itself without a 1040X because a 5329 is treated as it’s own tax return.

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