RMDs for year of death inherited ira
My father died recently. I am his executor.
He had 4 named ira beneficiaries none of whom are a spouse. Actually effectively 7 since one named beneficiary is deceased and per stirpes option directs his share to his 4 children. My father had not taken the 2021 RMD yet. Assuming I read this all it correctly: his non ira account cannot now receive the RMD from the IRA, but rather the beneficiaries collectively must take the RMD. This year is not part of the ten year inherited IRA rule. That starts next year. This year’s RMD is determined from the 2020 year end IRA balance and my fathers 2021 withdrawal factor.
Questions: The IRA has not been parsed up and transferred to beneficiaries’ IRA accounts yet. Once that is completed how are the shares of the RMD calculated (proportion to shares I assume). Who, other than me, informs the new IRS owners of their individual RMD amounts? Are transactions in the IRA still possible? Must the IRA now be distributed in kind, or can the IRA custodian sell the investments for cash, simplifying the distribution process? As executor may I direct the custodian to do that?
We should have enough time to get this done before year end, but it would be really difficult if this occurred in late December. I wonder is there some deferred deadline option for the inherited divided RMDs, when year end is close?
Permalink Submitted by Alan - IRA critic on Mon, 2021-11-08 04:24
The IRS will waive the penalty for failure to complete the year of death RMD if a correctly completed 5329 is filed, but it would have to be filed by each beneficiary. This is typical for year of death RMDs and almost all late year deaths will not have the RMD parsed out until the following year. You are correct that the beneficiaries can complete the RMD in any combination, and often with multiple beneficiaries a couple of them will want to take large distributions.
As executor you have no official responsibility for this as the IRAs are not part of the estate. However, you are likely one of the beneficiaries. No distribution can be made until separate accounts are established for each beneficiary since the year of death RMD must be made to a beneficiary and reported as income for that beneficiary on Form 1099R. You could easily determine the total uncompleted RMD and divide it up into pro rated shares for each beneficiary to take. Now, if these beneficiaries worry that one or more of the others will fail to withdraw their share, it is useful to know that the IRS does not penalize any beneficiary for the failure to complete the entire RMD if they at least take out their pro rated share.
In a complex beneficiary situation like this, the IRA custodian may have special procedures, so if you are the first to submit the death certificate and your personal contact info, you can ask the custodian what the procedure is to have the separate inherited IRA accounts set up smoothly and promptly. You will then have to adjust to their response. They would likely prefer that everyone submit their data at the same time or if not they might like to collect everyone’s data and they establish the inherited IRAs simultaneously, but in some situations there are procrastinators who will prolong this process.