Spousal Inherited IRA, No RMDs taken because access to funds were held up due to legal issue.

Submitted by Rodney Jarrell on Thu, 2024-02-01 16:43

I have a client age 79. She was married to her husband for 29 years (2nd marriage for both). Her husband died in 2021 when he was 77. The beneficiaries of the IRA were the woman’s step children. The custodian held up distribution of the funds until 2024 because the couple lived in a community property state. The custodian required a court letter for distribution of the funds. In January, 2024, the funds were distributed (half to the step-children and half to the spouse). No RMDs have been taken since the year of death. Does the spouse have to take RMDs for 2022 and 2023? Will there be a penalty for not taking the RMDs since she did not have access to the funds until 2024?



Submitted by Alan - IRA critic on Thu, 2024-02-01 18:23

  • If the client now has a separate inherited IRA, she must make up the 2022 and 2023 beneficiary RMDs based on 50% of the inherited IRA balance on 12/31/2021 and 12/31/2022 respectively. After this is done, she should elect to assume ownership of her inherited IRA, and she will be treated as the owner for all of 2024. Her Uniform Table 2024 RMD is based on 50% of the 12/31/2023 balance. After making up the late RMDs, she should file Form 5329 with 1040X for both 2022 and 2023 to request waiver of the penalty for reasonable cause. Care should be taken to correctly complete the 4 lines on the 5329 per Instructions. The IRS will likely waive the penalty.
  • Had her husband completed his 2021 RMD before passing? If not, completion of that is a joint responsibility of the 3 beneficiaries, but that takes coordination between the 3 which might not be viable in this situation. 
  • The custodian should have required a spousal waiver to accept non spouse beneficiaries in a community property state.

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