Automatic RMD distributed to decedent post-death (year of death RMD)
In the first link below, Andy Ives, CFP®, AIF® says:
“Occasionally, a person will die right before his RMD was scheduled to be automatically paid out. If the RMD is then erroneously paid to the deceased account owner, the RMD must be returned to the IRA and properly distributed to the beneficiary.”
My understanding is that this is wrong. In the second link below, Alan S. says:
“A much larger hassle is created if the IRA custodian is not notified of the death before an automatic RMD is distributed to the decedent than if the RMD does not get completed. Since the distribution to the decedent is post death, these funds will go to the estate subject to probate”
Which is right? I don’t think you can return the year-of-death RMD to the IRA and then properly distribute it to the beneficiary.
I’m not having this issue, but noticed the different answers and was curious.
Permalink Submitted by David Mertz on Fri, 2021-12-17 02:04
Andy Ives is correct. If there is a designated beneficiary, the estate is not entitled to receive the distribution; the distribution properly belongs to the designated beneficiary by operation of law despite the late notification to the custodian.
The custodian should make the correction. If the custodian will not do so, it’s possible for the estate to be treated as a nominee recipient for the distribution and issue a Form 1099-R to pass the distribution to the designated beneficiary, filing the Form 1099-R and Form 1096 with the IRS. Either way, it does not become part of the estate that is subject to probate. On the estate income tax return it gets added and then subtracted back out.
Permalink Submitted by Alan - IRA critic on Fri, 2021-12-17 03:05
Andy is correct. The distribution belongs to the beneficiary and the decedent should not have this post death distribution included in decedent’s 1099R. The custodian should re deposit the check into the account. The beneficiary is then responsible for completing the year of death RMD after the inherited IRA is established.
Permalink Submitted by John L. on Fri, 2021-12-17 04:26
Thanks for the complete answers. This is interesting. It would be quite the mess if the custodian declined to help correct the situation.
Respect to both of you.
Permalink Submitted by Alan - IRA critic on Fri, 2021-12-17 14:29
That could occur. In that case, the nominee process might be solution between the decedent’s final return and that of the beneficiary. The executor should pay the distribution to the beneficiary.