RMD in year of death Estate as Beneficiary

Submitted by Howard Hook on Tue, 2023-11-07 17:12

Client , age 80 dies in 2023 prior to taking her RMD for the year.
There is no named primary or contingent beneficiary.
Assume estate then is the beneficiary.
In order to be able to process RMD to the estate the custodian is asking for letters testamentary appointing executor who will sign the distribution form.

Delays in getting letters may cause letters not being received until after 12/31.

What then should be done to satisfy RMD for client in year of death?

Take RMD once letters are received and if after 12/31 apply for penalty relief?

Thanks
Howard



Submitted by Alan - IRA critic on Tue, 2023-11-07 17:31

It amazes me how often IRA owners neglect to designate a beneficiary. But due to the Secure Act proposed Regs, the beneficiary (estate or individuals assigned inherited IRAs out of the estate by the executor) now have until the tax due date including extensions to complete the year of death RMD. That means if the distribution was to be made to the estate instead of to inherited IRAs assigned out of the estate, the estate could elect a fiscal year instead of a calendar year, which would extend the due date for the estate return, and provide more time for completing the year of death RMD. That would avoid having to file a 5329 to request a penalty waiver.



Submitted by Howard Hook on Tue, 2023-11-07 19:51

Thanks Alan as always – one followup question:What does inherited IRAs assigned out of  the estate refer to ?Does this suggest that it may be possible to name the specific beneficiary under the Will as the inherited IRA owner rather than the estate ?- ThanksHoward  



Submitted by Alan - IRA critic on Tue, 2023-11-07 20:56

Yes, while some IRA custodians will not cooperate with executor assignment to individual inherited IRAs, most will accept the executor’s request to create an inherited IRA for each beneficiary under the will (or intestate beneficiary if there is no will) and transfer that beneficiary’s share to the inherited IRA. The beneficiary can then manage their own inherited IRA, name their own beneficiary, etc. and this will allow the estate to be closed. However, such assignment does not change the RMD requirements that would have applied to the estate. In your case the client passed after their RBD, which means that beneficiary RMDs will be due each year based on the remaining life expectancy of the client. The 2024 divisor will be 10.2, then reduced by 1.0 for each year thereafter. The 2023 RMD is that of the client, which must also be completed by the deadline as explained above, and this RMD can also be completed by the estate beneficiaries in any combination if there is more than one such beneficiary. 



Submitted by Howard Hook on Sun, 2023-11-12 19:18

Thanks – one last conceptual question –  As you mention in my specific example the 2024 divisor would be 10.2 then reduced by 1 for each year thereafter.  If the client had died at an earlier age where the initial divisor was greater than 10.2 – say it was 16 – would the ten year rule still apply or could they continue beyond the 10th year and finish out the rest of the life expectancy?Howard



Submitted by Alan - IRA critic on Sun, 2023-11-12 21:42

  • As long as the client passed after RBD with the estate as beneficiary, there is no 10 year rule. So if client passed at at 73, with the first 2024 divisor being 15.4, the inherited IRAs could be distributed over those 15.4 years.
  • However, if the client passed prior to RBD with the estate as beneficiary, the 5 year rule would apply but no annual RMDs are required.
  • The 10 year rule never applies if the estate is the beneficiary.


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