Year-of-Death RMD with multiple beneficiaries

Submitted by Chuck Lerch on Thu, 2023-02-16 04:34

This article states that “If there are multiple IRA beneficiaries, the IRS does not care WHO takes the year-of-death RMD, the IRS just wants it to be taken.”
https://irahelp.com/slottreport/year-death-rmd
Another source echoes this:
https://www.mariettawealth.com/required-minimum-distribution-during-year-of-death/
The custodian in my case is saying all beneficiaries must split the year-of-death RMD evenly. Another online source (Ascensus) says the same: https://thelink.ascensus.com/articles/2021/10/20/year-of-death-rmds-and-missing-or-unresponsive-beneficiaries-a-case-study-in-bad-options
Is there any guidance in the law or from the IRS on this?
Thanks,
Chuck



Submitted by David Mertz on Thu, 2023-02-16 12:23

  • The position that the year-of-death RMD can be satisfied by multiple beneficiaries in any combination is based on the wording in CFR 1.401(a)(9)-5 Q&A4 where it states, “Thus, a minimum required distribution, determined as if the employee had lived throughout that year, is required for the year of the employee’s death and that amount must be distributed to *a* beneficiary to the extent it has not already been distributed to the employee.” [Emphasis added]  Nowhere does it say (or does any IRS guidance say) that the year-of-death RMD must be satisfied by beneficiaries in proportion to their respective shares.
  • That Ascensus reference actually suggests that taking the RMD in any combination is a possible alternative but also states that the IRS has provided no specific guidance on what combinations are permissible.
  • It is not the IRA custodian’s business to be providing tax advice.  The IRA custodian has no authority to force any particular combination of distributions to satisfy the year-of-death RMD from the inherited IRAs established by nonreportable trustee-to-trustee transfers from the decedent’s original IRA.
  • The answer may be different if the decedent’s retirement account is instead in a qualified retirement plan like a 401(k).  Because the movement of funds from such a plan to multiple inherited IRAs involves distributions and rollovers rather than nonreportable transfers, and because the year-of-death RMD is not permitted be rolled over, the plan agreement might specify that the year-of-death RMD must be satisfied by distributions from the plan to the beneficiaries in proportion to their respective shares rather than allowing the beneficiaries to specify a different combination.

Submitted by Alan - IRA critic on Thu, 2023-02-16 15:00

  • Here is an article by Natalie Choate on this subject confirming DMx’s post. But note situation #2 where various IRA accounts have different beneficiaries and a beneficiary who is not named on an account cannot satisfy the RMD for that account. In that case, a charity receiving a total distribution from one IRA does not satisfy the RMD for other IRAs with individual beneficiaries.
  • Multiple Beneficiaries and the Year of Death RMD | Morningstar
  • The above link may not be available for non Morningstar subscribers.

Submitted by Chuck Lerch on Thu, 2023-02-16 19:39

Thank you for such a thorough and well-cited (and timely) response. I my case (traditional IRA owned by my dad) there are two beneficiaries, my brother (who wants to cash out his share, the amount far exceeding the RMD) and me (want to transfer my share to an inherited IRA and take no distribution this year). I will press the custodian to designate my brother’s distribution as fully satisfying the RMD.I thought I would also share another Ascensus reference that is unequivocal (and apparently wrong based on the sources cited here): “If there are multiple beneficiaries, each beneficiary is responsible for removing their proportional share of the total RMD amount in the year of death; one beneficiary cannot satisfy the entire RMD amount.” https://thelink.ascensus.com/articles/2019/12/18/how-to-handle-year-of-death-rmds

Submitted by Alan - IRA critic on Thu, 2023-02-16 20:17

  • Surprising coming from Ascensus, not being an IRA custodian with an interest in avoiding beneficiary coordination involving which beneficiary distributes how much. Obviously, in many cases accurate beneficiary coordination never occurs, some beneficiaries do not communicate with each other at all. But an IRA custodian has no authority to force out a distribution, even an RMD. They don’t know that the beneficiary did not inherit another IRA from the same decedent at another institution and might have satisfied the year of death RMD from the other inherited account. 
  • Note that the Secure Act proposed Regs no longer require the year of death RMD to be distributed by the end of the year. The new deadline is the filing due date (4/18/2023) or the extended due date if an extension is timely filed. If the year of death RMD is completed by these deadlines, there is no need to file a 5329 to request a penalty waiver for the year of death. 

Submitted by David Mertz on Fri, 2023-02-17 01:39

Regarding, “I will press the custodian to designate my brother’s distribution as fully satisfying the RMD.”  IRA custodian’s do not “designate” distributions as being RMD or not, they simply report distributions.  Satisfying the year-of-death IRA RMD is entirely the responsibility of the beneficiaries.  Because before death the decedent could have taken the RMD for one traditional IRA from a different traditional IRA, a traditional IRA custodian has no way to know how much of a particular IRA’s RMD might already have been satisfied.  There should be no discussion with the IRA custodian about RMDs at all.

Submitted by Chuck Lerch on Sun, 2023-02-19 04:05

The custodian is going to treat my brother’s distribution as fully satisfying the RMD and not process a distribution for me. It sounds like they customarily distribute the RMD (if not already satisfied for the year) to each beneficiary in proportion to their shares and their systems/processes make it more difficult to do otherwise. But I’m just speculating based on the conversation I had with the advisor. They are asking my brother to return his distribution paperwork before processing my inherited IRA transfer so they can do it all at once.It was very helpful to have your advice and insights as support for my position.

Submitted by Alan - IRA critic on Sun, 2023-02-19 14:49

  • It’s likely typical for a custodian who improperly dictates the amount of beneficiary RMDs each beneficiary must take to also take the position that all beneficiary transfers to inherited IRAs be done simultaneously. This position allows any procrastinating beneficiary to hold other beneficiaries hostage by delaying their establishment of separate accounts, which can in turn change the RMD divisor for all beneficiaries to that of the oldest beneficiary. Can you imagine a case where there were many beneficiaries and no separate accounts are created until all of them return their documentation?  
  • Ask them to tell you which provision of their IRA agreement addresses these requirements. I bet that there is no such written provision, but instead they will tell you that these requirements are non disclosed operating procedures. Are you willing to disclose who this custodian is, or if not whether they are a brokerage firm, mutual fund company, insurance company, bank, or CU?
  • At the end of the day, if you want to expend the energy to resist, they may relent. You and your brother will have to decide whether to comply or resist these unnecessary requirements. 

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