Inherited IRA after RBD

Submitted by Richard Stumpf on Fri, 2019-08-30 20:39

Client’s mother died a couple weeks ago. Was 90. Client is 62.

2 questions:
Do I remember correctly that this has to be a direct custodian to custodian transfer for it to survive as an inherited IRA?

Client’s CPA is telling client no RMD is due this year if the account is moved before 12/31. Is that correct? Neither the estate of deceased nor beneficiary has to take RMD for 2019?

Thanks.



Submitted by Alan - IRA critic on Sat, 2019-08-31 00:23

Client cannot do a 60 day rollover, so yes the account can only be moved by a direct transfer. A transfer has no bearing on whether an RMD is due for a year. For the year of death, the beneficiary does not have to take a beneficiary RMD, but client must complete any portion of mother’s RMD for 2019 that she did not complete. This RMD would be reported to the client and client would report it on client’s return. The estate is only involved if the estate was the actual beneficiary. If there were any other beneficiaries on this IRA, the year of death RMD can be completed in any combination by those beneficiaries.

Submitted by Richard Stumpf on Tue, 2019-09-03 15:03

CPA is specifically telling the client that, even though mom did not take the RMD before her death, if the account is  moved before FYE no RMD is due from anyone in the year of death.  What you wrote above is what my understanding was as well.  One RMD should happen, even in the year of death.

Submitted by Alan - IRA critic on Tue, 2019-09-03 15:18

  • Yes, you could show the client the following portion of IRS Reg 1.401(a)(9)-5, QA 4.
  • “If an employee dies on or after the required beginning date, the distribution period applicable for calculating the amount that must be distributed during the distribution calendar year that includes the employee‘s death is determined as if the employee had lived throughout that year. Thus, a minimum required distribution, determined as if the employee had lived throughout that year, is required for the year of the employee‘s death and that amount must be distributed to a beneficiary to the extent it has not already been distributed to the employee. “
  • The year of death can be done anytime before the end of that year, and in fact in many cases is not done until things are sorted out in the following CY. The IRS will routinely waive any penalty with a proper 5329 if the year of death RMD is late. If the RMD is completed in the year of death by the beneficiary, it does not matter whether this is done before or after a direct transfer of the account is made.

Submitted by David Mertz on Tue, 2019-09-03 15:34

  • The CPA is wrong.  As you and Alan_iracritic have said, if an IRA participant dies after RBD, upon the death of the participant the beneficiary immediately becomes responsible for completing the year-of-death RMD.
  • From CFR § 1.401(a)(9)-5 Q&A-4(a):  If an employee dies on or after the required beginning date, the distribution period applicable for calculating the amount that must be distributed during the distribution calendar year that includes the employee’s death is determined as if the employee had lived throughout that year. Thus, a minimum required distribution, determined as if the employee had lived throughout that year, is required for the year of the employee’s death and that amount must be distributed to a beneficiary to the extent it has not already been distributed to the employee.  [Since this is in regard to an IRA, substitute the word “participant” where this refers to “employee.”]
  • https://www.law.cornell.edu/cfr/text/26/1.401(a)(9)-5
  • The assumption here is that this is a traditional IRA.  If the IRA that was owned by the client’s mother is a Roth IRA, there is no RBD and no year-of death RMD.

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