Tricky RMD question
My father was hospitalized at the end of 2021 and was unable to take his RMD. He passed away in early 2022 and his trust inherited the IRA. As executor, I’ll be taking his 2021 RMD as soon as the transfer to his trust is completed, but have a question.
Can his 2021 RMD be taken as a QCD towards some charities he was involved with? We know it can’t be done with his 2022 year of death RMD because his trust was the beneficiary, and trusts are excluded from doing so. However, it’s not clear that this applies to his retroactive 2021 RMD as well.
Any pointers to IRS documentation around this would be appreciated.
Permalink Submitted by Alan - IRA critic on Tue, 2022-03-15 18:05
It may be counter intuitive, but the IRS Regs only impose responsibility on IRA beneficiaries for the uncompleted year of death RMD, not for any prior year RMD failures of the decedent. Therefore, as the trustee of the trust you are NOT responsible for the 2021 RMD, just the 2022 year of death RMD. See IRS Reg 1.401(a)(9)-5, QA 4 (a). You have until 12/31/2022 to distribute the 2022 year of death RMD, calculated as if your father lived the entire year. And since the trust does not have have an age, the year of death RMD cannot be taken as a QCD.
Permalink Submitted by Brian Hassink on Tue, 2022-03-15 19:13
Thank-you for the reply. Does this mean the 2021 RMD need not be taken at all, and there are no penalties (normally 50% of the RMD) against the estate for him having missed it? I would have thought the absence will be noticed by the IRS in his 2021 tax return.
Permalink Submitted by David Mertz on Tue, 2022-03-15 19:50
The only circumstances where no 2021 RMD would have been required is if his Required Beginning Date for RMDs was April 1, 2022. Otherwise, if the 2021 RMD is never taken, his 2021 tax return should include Form 5329 Part IX assessing the 50% excess accumulation penalty. It would seem that the executor of his estate would have a fiduciary responsibility to avoid the penalty by having the trust complete the 2021 RMD and with his 2021 Form 5329 Part IX request a waiver of the penalty.
Permalink Submitted by Brian Hassink on Tue, 2022-03-15 20:20
Yes, the plan is to take the 2021 RMD to avoid the penalty. Which brings me back to the original question of whether the 2021 RMD can be taken as a QCD to also avoid taxes. Although the trust is the current IRA owner, the 2021 RMD is retroactive to when my father was alive and will be reported on his 2021 personal taxes (with a waiver of penalty).
Permalink Submitted by David Mertz on Tue, 2022-03-15 20:57
The distribution cannot be reported on your father’s 2021 tax return because it was not paid to your father in 2021. If the recipient is the trust, the distribution cannot be a QCD; the distribution will be reported on the trust’s income tax return for the period in which includes the distribution date. If the trust beneficiary is over age 70½ and the IRA can instead be distributed intact out of the trust to that trust beneficiary, allowing the trust beneficiary to complete the 2021 RMD, the trust beneficiary could make the distribution as a QCD. (Of course if the IRA can be distributed out of the trust, what was the point of making the trust the beneficiary of the IRA instead of just making the trust beneficiary the beneficiary of the IRA.)