Client passed away in 2020 with no beneficiary listed on IRA
Had an older client (in their 90s) who passed away in 2020, with no beneficiary listed on their IRA. We did not process a 2020 RMD due to the CARES Act. This IRA was started by the client years ago.
My question is, since the deceased client was past the required beginning date age, is an RMD required in 2021 that follows their lifetime expectancy on the Uniform Lifetime RMD table? To my understanding of the rule, the 5 year distribution rule only applies if the deceased was under RBD age. So if the client would have been 95 years old in 2021, we need to complete an RMD using that age factor on the table.
Second, am I correct in thinking the RMD must be paid to the estate of the deceased? There are family members named in the will, but unfortunately were not listed on the IRA.
The probate process is ongoing with this estate. Thank you for any help and discussion.
Permalink Submitted by Alan - IRA critic on Tue, 2021-12-21 04:00
It should be verified that client’s estate is the default beneficiary. If so, and the client’s attained age in 2020 was 94, then the single life table (not Uniform table) divisor for 2020 is 4.3. No 2020 RMD, but the 2021 divisor is 3.3. The IRA 12/31/2020 value should be divided by 3.3 and the RMD distributed to client’s estate before year end.
Alternatively, if the estate will have no other income and not have to file a 1041 for 2021, the executor might consider assigning the IRA out of the estate to the will beneficiaries, postpone the 2021 RMD until it can be made to the individual inherited IRAs of these beneficiaries in 2022. This will not change the divisors. A form 5329 should then be filed by the estate requesting waiver of the penalty for 2021 after the 2021 RMD has been completed to these beneficiaries. This form can be filed alone if there is no 1041 required for 2021. This decision should consider the balance of the IRA and how many will beneficiaries there are. If there are too many, the IRA custodian may not cooperate with the assignment request from the executor.
Permalink Submitted by [email protected] on Tue, 2021-12-21 19:28
Thank you Alan for the response. Just to clarify your first point, the divisor is 3.3 because you take the divisor in the year of death (4.3) and simply subtract one for the successive years? Let’s say the probate process drags on into 2022. Another RMD is required by end of next year equaling the 12/31/2021 balance divided by 2.3 (in our example?) Thanks again.
Permalink Submitted by Alan - IRA critic on Tue, 2021-12-21 19:43
Yes, that is correct. While new RMD tables are effective starting in 2022, the initial divisor for a 94 year old remains 4.3, and therefore 2.3 for 2022.