2021 RMD can’t be satisfied in time.
My husband’s mother passed away in September of 2021. She had two different IRA’s and left my husband a portion of each. His sister got the rest. His Mother took RMD’s every month.
It has proven very difficult working with JPMorgan to get their required paperwork done. Long story. We finally got the paperwork in yesterday and they are telling us it can take a month, or two for it to go through. This will put it into next year.
We have no idea how much his sister took out, because my husband and her are not on speaking terms. Although, there isn’t an official executor, (No probate.) his sister has told everyone she is in charge. With JPMorgan, they only give information to the executor.
The person we were working with, said there was a RMD left. No other information than that. They just say to ask a tax professional.
1. Ist my husband only responsible for the percentage of the account that he was left? (He was left 20%, so he should be responsible for 20% of the RMD?)
2. Is there anyway to find out if his sister took enough money out of her portion to cover the RMD’s for their Mother’s accounts? (We have a feeling she took out a large portion, but no way to know for sure.)
3. Is my husband going to lose half of the RMD from his portion, at the end of the year, because of JPMorgan and their delays?
4. If his sister actually does their Mother’s taxes; Is the RMD after their Mother’s death considered part of his Mother’s income for 2021? My husband filled out the form to sell some funds in the IRA to satisfy the RMD, before it was officially inherited and put in his name.
Thank You
Permalink Submitted by Alan - IRA critic on Fri, 2021-12-17 16:00
The two beneficiaries are jointly responsible, but my understanding is that the IRS will not hold a beneficiary responsible for a year of death RMD shortfall if they distribute at least their pro rata share of the RMD. So if mother completed 8 months worth (66.7%) of her RMD, then your husband would have little risk if he took out 20% of 33.3% of the RMD. That comes to only 6.67%.
Your husband can ask JPM how much remains of the 2021 RMD, but only for accounts which JPM holds. What if there are other accounts with different beneficiaries? It does not sound like JPM is handling this professionally, so who knows what they will do? Hopefully, they do not over distribute to your husband.
If husband’s share is 20% of the balance, he is only responsible for 20% of the RMD shortfall. But if the plan distributes more than that, he still cannot roll any amount over since he is a non spouse beneficiary. His only leverage is threatening to complain to the DOL if JPM mishandles the RMD.
Distributions after death to beneficiaries, whether RMDs or not, are reported on a 1099R to those beneficiaries. They are not income to his mother. Selling the funds in the IRA are not taxable transactions, only distributions out of the inherited IRA are taxable.
Sounds like your husband may not be receiving all info he has a right to know. For example, if mother had basis in her IRA from non deductible contributions, he should inherit 20% of the remaining basis but his sister may not understand this or care. Whoever did mother’s taxes could be asked if her returns included a Form 8606 to calculate the taxable portion of recent RMDs.
Your husband will be subject to the 10 year rule unless he is disabled. That means starting in 2022 he will have no annual RMDs, but will have to drain the inherited IRA by 12/31/2031. Therefore, to prevent a big tax bill at the end of the 10 years, he should consider spreading out distributions voluntarily.
Permalink Submitted by Apryl Harrer on Sun, 2021-12-19 00:04
Thank you for taking the time to answer my questions. Yes, JPM is being incredibly unprofessional. Non of the people locally are willing to deal with my husband, because they feel there is nothing in it for them. We have both spent hours on the phone with random people trying to get them to help us. (Hours on hold to even talk to someone.) I had one person on the phone tell me to open a traditional IRA-that there was no difference between that and a beneficiary IRA. I’m glad I knew better. My husband has had to fill out their paperwork 3 times and get it notorized too, because of them. They wonder why we don’t want to keep the accounts with them. His Mother had accounts only with them. I would suggest anyone who banks with them, to consider your beneficiaries and what they have put us through. We have no idea who did his Mother’s taxes. His sister will not communicate at all. I don’t know how we would be able to get this information.JPM has instructed my husband to liquidate some bonds, to satisfy the RMD for this year, in two different accounts. My husband is actually disabled. I’m guessing the rules are diffferent?
Permalink Submitted by Alan - IRA critic on Sun, 2021-12-19 02:54
It sounds like your husband might have managed to have his interest transferred into an inherited traditional IRA showing him as beneficiary. If so, that’s the most important portion.
If his disability meets the definition from Sec 72(m)(7) copied last, and has the separate inherited IRA, his RMDs can be based on his single life expectancy rather than the 10 year rule. There is a similar exception for a chronically ill person. Both exceptions qualify his as an “eligible designated beneficiary”, meaning eligible for the life expectancy stretch starting in 2022 using his attained age in 2022 and the new single life table being introduced next year.
Do not worry about the 50% excess accumulation penalty. The IRS will waive it under the circumstances if he file a 5329 for 2021 after he finally identifies what amount, if any, he must take out to meet 20% of the shortfall.
“(7)Meaning of disabledFor purposes of this section, an individual shall be considered to be disabled if he is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or to be of long-continued and indefinite duration. An individual shall not be considered to be disabled unless he furnishes proof of the existence thereof in such form and manner as the Secretary may require.”
Permalink Submitted by Apryl Harrer on Wed, 2022-04-06 14:28
Just wanted to quickly update what’s been going on since my post.It’s now April 6th, 2022. JPMorgan just yesterday transfered my husband’s inherited IRA to an account in his name and gave him access. His Mother passed in September of last year. JPM has dragged their heels on this since then. They made my husband keep filling out paperwork about once a month. He has been on the phone for hours and hours. They kept coming up with excuses not to set up his account. Then, two months ago, they claimed to have set up the account, but there was an internal error, so he couldn’t have access to the account. We had no idea what, or how much was in the account. They refuse to send statements from when the account was in his Mother’s name to this day. They say to trust them. HA! JPM sent him a check for the RMD for 2021, in February of this year. My husband had no control of what was sold in the account for the RMD, since he had no control over the acccount. We still aren’t sure exactly what the RMD amount was supposed to be. Since the amount supposedly for the RMD, for 2021 was sold in 2022, doesn’t that amount count towards the 2022 distrubution? If JPM won’t give statements before the account was transferred to my husband’s name, how are we supposed to know what happened in the account last year? RMD amount? Dividends? If they split the account correctly? It makes it very difficult to know how much to take in distrubutions this year. I don’t want a tax surprise next year. Thanks
Permalink Submitted by Alan - IRA critic on Wed, 2022-04-06 18:21
There are likely various issues contributing to JPM’s inefficiency here. Non communicating multiple beneficiaries may be one of them, since a single account was inherited by beneficiaries who are not entitled to know about details of what the other beneficiary inherited or what the % that each beneficiary inherited. Some IRA owners plan to leave unequal shares and do not want the beneficiaries to know about it until after their passing. Particularly when it becomes obvious that the beneficiaries are not on the same page, the custodian will take extra precautions to avoid becoming entangled in any litigation, and may go overboard on confidentiality concerns. However, after full documentation is provided by a beneficiary and a separate inherited IRA is established, the dollar interest (but not the %) for that beneficiary is retroactive to the DOD. In other words, whatever dollar amount that was inherited on the DOD should be disclosed, but info is frozen until the separate account is set up, then should be unfrozen retroactively, but only with respect to the particular beneficiary. Different custodians likely have common internal procedures to a degree, but also may vary according to the details of the situation. It sounds like your husband is entitled to know what occurred with his share only and back to the DOD now that his inherited account has been established. Sales of investments to fund automatic RMD distributions are normally done pro rata or by a pre agreed amount by mother, except of illiquid investment.
Another potential issue if mother was set up for automatic monthly RMD distributions, is that one of more distributions might have been made to her after her DOD. This is a frequent problem, because the beneficiaries are entitled to these funds in proportion, not the estate of the deceased owner. As beneficiary funds, the 1099R should be issued to the beneficiary, who will owe taxes on the amount they received but funds will have to be transferred from mother’s estate to the correct beneficiary. Imagine the hassle if mother’s will beneficiares differ from her IRA beneficiaries. Some custodians may just report the 1099R to mother, knowing that distributions were made after her death, and leaving it to the beneficiaries to settle the estate and use the nominee process to shift taxable income from mother’s final return to the beneficiarie’s return. Again, your situation could have been hampered by these issues and perhaps additional issues. I know that the issues here are not typical for large professional custodians, but the underlying issues can trigger complexities that the bank’s beneficiary dept staff are not fully experienced in handling. It could be that processing delay could not be avoided, but that the beneficiary dept of JPM did a poor job of communicating the basic cause of the delays. Lots of possibilities here.
Once an IRA owner’s health begins to fail, they should abort any automatic distributions and simply take a lump sum distribution for the rest of the annual RMD. That will avoid automatic distributions continuing after the DOD to the decedent which will have to be re allocated. At this point I see no reason why your husband should not be entitled to what his share of the account was on the DOD. Investments sold to raise cash for automatic distributions after DOD are usually done pro rata except for illiquid holdings.
Mother should also have considered partitioning her IRA into separate IRAs for each beneficiary once her health began to decline. That would have facilitated some post death procedures as the interests of each beneficiary would already have been separated and totally independent.
In short, JPM may not be handling this efficiently, but they also have found themselves the victim of a post death situation that has made settlement challenging. Most likely, his sister is equally upset with JPM, but it would be very rare for JPM to treat the 2 beneficiaries differently. Their main concern is avoiding any litigation or violation of accepted confidentiality policies.