Is a 2021 RMD required for a 2020 deceased person?
86 year old widower with a Trust passed away in May 2020. Settling Accounts, notification to brokerage and EIN creation began over one year later, in late 2021. A Traditional IRA Brokerage Account will be split to the adult children named as beneficiaries and Traditional Beneficiary IRA accounts will be set up for them. The brokerage says a 2021 RMD must be taken by 12/31/2021 for the deceased person. Is this accurate?
Permalink Submitted by Alan - IRA critic on Mon, 2021-12-06 19:05
No, the 2021 RMD (if any) should be taken for the trust beneficiary, not the decedent. Of course, if the trust was not qualified then the remaining LE of the decedent will determine the RMDs to the trust or to the trust beneficiaries if the trustee assigns the IRA out of the trust. For the trust to qualify for look through, the trust info must have been submitted to the IRA custodian no later than 10/31/2021. Was it? If the trust qualifies, then the 10 year rule would apply and there would be no RMD required for 2021.
If the above assignment of the IRA to the trust beneficiaries will not be completed until after 2021, the individuals could make up their share of the 2021 beneficiary RMD (if any) and file a 5329 for 2021, and the IRS will likely waive the penalty. That would eliminate a distribution to the trust, and possibly also the need for a 1041 trust income tax return for 2021. But as indicated above, if the trust is qualified, the 10 year rule will apply with no annual RMDs required.
Assignment of the IRAs out of the trust will not change the RMD for the beneficiaries. They will still be either subject to the 10 year rule requiring full distribution by 12/31/2030, or the remaining LE of the decedent which would be about 6 years of annual RMDs.
Permalink Submitted by Rob on Mon, 2021-12-06 21:02
Assignment of the IRA to the trust beneficiares will not be completed until December 2021 or early 2022. Now what?
Permalink Submitted by Alan - IRA critic on Mon, 2021-12-06 22:27
The first order of business is to determine if the trust is qualified for look through or not. If it is, there is no beneficiary RMD for 2021 since the 10 year rule will apply. If not qualified, then there will be a 2021 RMD, and it will be late if not distributed by year end to either the trust or to the trust beneficiaries if they have their own inherited IRAs in time. If it is distributed to the trust the trustee can pass it through to the trust beneficiaries to be taxed at their own rates, but a 1041 (income tax return for a trust) will have to be filed. Again, if the RMD is required, but is late because the trust still holds the IRA, the trust can file a 5329 to ask that the IRS waive the penalty, and the IRS almost always does waive the penalty. So there are a alot of options here, depending on what the beneficiaries or trust trustee wants to happen.