I just had a client pass a few days ago. He hasn’t satisfied his RMD yet, so I realize it has to be taken. His spouse is the beneficiary. I assume the RMD for 2023 is going to be what it would have been had he lived? His spouse is only 4 years than him.
The decedent was over 90 years old and was still working, believe it or not. The plan was for him to retire on January 2, 2024, so we could have avoided an RMD this year. His money is in his 403B. My instinct tells me that even though he was still working and was planning to work all of 2023, his death is going to trigger an RMD. Can you tell if that’s the case, that because he died, he will have an RMD?
Since this is a 403b and he passed prior to his RBD under the “still working” exception, there is no 2023 RMD required for him or his surviving spouse. The surviving spouse could do a direct rollover of the entire balance from the inherited 403b to her own IRA this year. She would have an IRA RMD due in 2024 but can use the Uniform Table. She should not continue the account in inherited form. That said, even though there is no RMD due for the 403b this year, it is also the last year they can file jointly at the lower marginal rate, so perhaps she should take a distribution from the IRA anyway this year and/or convert some to a Roth IRA. If she already has her own IRA, she must complete her own RMD before converting any amount from her IRA.
I would not have thought of that. Thank you so much for the advice. When you said she should not continue the account in inherited form, I’m not sure I followed that. I follow you that we should take some money out this year because of the lower tax bracket. Was there more to it than that? We plan on establishing a TIRA and taking some money out per your advice. Is there more to it than that?
I meant that she should not leave the inherited 403b in place, and should do a direct rollover to a TIRA. She has time, but the rollover should be completed by fall. If she takes a distribution from the IRA, she could convert the portion she does not need for expenses.
The surviving spouse isn’t in great health either. If she passes before 12/31/23, I think she is exempt from taking an RMD, so wouldn’t that mean her beneficiaries are off the hook also for 2023? When I talk to her children, I know they will ask me that.
Yes, there is no 2023 RMD for the surviving spouse or whoever may inherit the plan from her. A direct rollover to her own IRA would allow her individual beneficiaries (if she names them) to use the 10 year rule which would give them an extra 5 years.
Permalink Submitted by Alan - IRA critic on Wed, 2023-03-08 17:10
Yes, the spousal beneficiary must complete his 2023 RMD unless this was his first RMD year, which is the same amount he was required to distribute for 2023. Spouse has until year end to take the distribution, and can either take it as the beneficiary from the inherited IRA, or elect to assume ownership and complete his RMD from her own IRA.