How to Take Year-of-Death Required Distributions

Monday, April 13, 2015

By Beverly DeVeny, IRA Technical Expert
Follow Me on Twitter: @BevIRAEdSlott

We are frequently asked how to take an undistributed RMD (required minimum distribution) for an IRA account owner in pay status who died during the year. First, you can read more on year-of-death tax reporting here. Now, the big question remains, “should the RMD come out of the deceased owner’s account before or after it is re-titled as an inherited IRA?”

The procedures will vary from IRA custodian to IRA custodian. The tax code allows for an RMD to be transferred to another IRA. It does not allow an RMD to be moved in a 60-day rollover to another IRA.

The important thing to remember when taking a year-of-death RMD is that any remaining RMD that was not taken by the deceased account owner must be taken by the beneficiary and reported using the beneficiary’s Social Security (SS) number. The IRA custodian could either pay out the RMD from the deceased owner’s IRA to the beneficiary using the beneficiary’s SS number, or the inherited IRA could be set up, the IRA funds transferred to the inherited IRA, and then the RMD could be paid out to the beneficiary. You can read more on year-of-death tax reporting here.

For a spouse beneficiary, the procedures are essentially the same. The only difference is that the inherited funds, including the unpaid RMD, could be transferred to the spouse’s own IRA.

If the inherited funds are transferred before the RMD is paid out, it is up to the beneficiary to ensure that the correct amount of the RMD is paid out of the new account by the end of the year. The IRA custodian will not have the necessary information on the new account to remind the beneficiary of the RMD that must be taken. Any RMD that is not taken is subject to a 50% penalty of the amount not taken.

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