RMD from fathers IRA who passed away

Submitted by Douglas Bauerband on Thu, 2023-05-25 19:35

Client passed away in April of 2023. Was 80+ and taking his RMD. But did not take his RMD for 2023.

3 kids beneficiaries share equally.

1. Can each kid take their share of the IRA and transfer to an inherited IRA without taking the RMD for 2023 and being taxed on it?

or…

2. Does each kid have to take their share of the RMD and then the balance can go into an inherited IRA?

Thank you and have a wonderful holiday weekend.
Doug



Submitted by Alan - IRA critic on Thu, 2023-05-25 19:56

  • The beneficiaries will not be allowed to take any distribution until their separate inherited IRAs have been established. Once established, the year of death RMD can be taken in any combination between the beneficiaries, but this requires some communication and coordination between them. The decedent’s 2023 RMD deadline is the tax due date for 2023 (usually 4/15/2024) plus extensions, so these beneficiaries have the option to postpone the 2023 RMD completion until 2024 if that presents a tax benefit. However, these beneficiaries will also have to take a 2024 beneficiary RMD since the decedent passed post RBD. Annual beneficiary RMDs based on the respective beneficiary’s single life expectancy (age in 2024) will be required in years 1-9 of the 10 year rule period and the inherited IRAs drained in 2033. 
  • To be clear, one of these beneficiaries may desire a large enough distribution to satisfy the entire year of death RMD, allowing the others to avoid participating in the 2023 year of death RMD. This only applies to the year of death RMD. All distributions will be reported on a 1099R to the recipient for the year of the distribution.

Submitted by Douglas Bauerband on Thu, 2023-05-25 21:05

I thought the new Secure Act stated that inherited IRA’s do not have to take any RMD’s but must liquidate the account prior to the 10th annivesary of death?Thank youDoug

Submitted by Alan - IRA critic on Thu, 2023-05-25 23:35

At first, that is what everyone thought. However, the IRS has stated that if the owner passed after their RBD as is the case here, that beneficiaries would have to take annual RMDs in years 1-9 of the 10 year rule period. That is included in the IRS proposed Secure Act Regs. The IRS reasoned that if the owner was subject to RMDs, beneficiares would have to withdraw “at least as rapidly” as the method the owner was using, that is based on their respective life expectancies. 

Submitted by Douglas Bauerband on Fri, 2023-05-26 15:46

Since one of the benies did take a lump sum of $23k which is way more than the 2023 RMD, Then:1. He will be taxed on the entire lump sum, which he knows (using for college) and that would satisfy the 2023 RMD, correct?2. since the one took the large enough distribution to satisfy the entire year of death RMD, the others can avoid participating in the 2023 year of death RMD and have their share transferred to their inhetied IRA, correct?Thank you very much Alan for all your assistanceDoug

Submitted by Alan - IRA critic on Fri, 2023-05-26 16:18

Yes to both questions. The year of death RMD has been completed by one beneficiary, therefore the others do not need to take distributions for this purpose.

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