Custodian missed decedent RMD deadline
How does an IRA beneficiary resolve a situation where the custodian didn’t process the decedent’s RMD prior to year end even though the request was submitted about a week prior?
Would the non-spouse beneficiary be required to take a 2022 RMD for the amount that remained in the deceased account at 2021 year-end? Can they choose to defer for the 10 years?
Yes, the beneficiary’s share (% of account they inherited) of the year end balance for 2021 would determine the 2022 beneficiary RMD. While most beneficiaries will fall under the 10 year rule, some will be eligible designated beneficiaries and still be able to stretch. In addition, whether the decedent passed prior to or after the RBD will determine whether 10 year rule beneficiaries must take annual RMDs within the 10 year rule or not according to the new proposed IRS Regs. I doubt that a 2022 annual RMD within the 10 year rule will be required even if the Regs are approved, but if approved as stated, those annual RMDs would start in 2023. This is complex, probably overly so, but we can narrow this down if you clarify whether this beneficiary is an eligible designated beneficiary or not, and if decedent passed prior to or after RBD.
Then the 10 year rule applies, and proposed Regs would also require annual LE RMDs for years 1-9. However, unless beneficiary wants to take a 2022 LE RMD, I would hold off until the Regs are final, and perhaps even if they are adopted with this requirement, since it will be late in the year, 2022 may be excepted from the annual RMD. Also, beneficiary will also have the year of death RMD included in 2022 taxable income.
Permalink Submitted by Alan - IRA critic on Wed, 2022-02-16 20:29
The only option is to take the missed RMD ASAP. Once that is done, the beneficiary can file a Form 5329 with their 2021 return asking for the penalty be waived for “reasonable cause”. The beneficiary can offer about anything for the cause and the IRS has been waiving the penalty. Of course, the late RMD will be taxable in 2022, not 2021 along with the 2022 RMD. RMDs should never be requested after 12/15 since that increases the odds of the RMD not being processed by year end.