beneficiaries and RMD in year of death
I have a fellow advisor who has a client age 75 who died in 2007 prior to taking his RMD for the year. Custodian of IRA is saying that an inherited IRA account must be setup first by each of the beneficiaries (his children) and the pro rata proceeds of dad’s IRA transferred into each of the inherited IRA accounts. Then the RMD for that year will be distributed to them from each of their inherited IRA account before year end.
This does not sound correct. I had the same situation and the custodian I use cut the check for the RMD to the beneficiaries and then rolled over the balance into the spouses IRA
I’d like to help him out so if someone could verify this for me that would be great.
Howard
Permalink Submitted by Alan Spross on Wed, 2007-11-14 20:28
The difference results from the custodian’s accounting and administrative procedures, and is not the subject of an IRS Reg.
The sooner the separate accounts are established, the less complex the accounting becomes to be sure that each beneficiary receives the correct share of the account. But after the separate accounts are set up, the custodian should not require that the RMD be equally shared. As long as the RMD is satisfied, the IRS does not care which beneficiary distributed it. An additional benefit of separating the accounts first is the reduction of the chance that the deadline is not met, and then all the beneficiaries will have to use the life expectancy of the oldest.
A custodian that supports separate share accounting as a subdivision of a single account is likely more comfortable allowing distributions, whether RMD related or not, to be taken prior to separation.
Permalink Submitted by Howard Hook on Wed, 2007-11-14 20:49
Alan,
Sorry. I may have overcomplicated the question. My basic question is:
Must the RMD that the deceased was supposed to take be distributed out of the decedent’s IRA account before the account is transferred into the inherited IRA account?
It seems like my fellow advisor’s case the custodian is saying that it does not have to be and can be done after the funds are transferred into the inherited IRA account ?
Howard
Permalink Submitted by Alan Spross on Wed, 2007-11-14 21:52
Yes, it CAN be done after transfer to the inherited IRA account. Since IRA RMDs can be aggregated, a transfer can be done prior to distribution of the RMD. This applies to both owned and inherited IRAs. See attached paste from the Regs.:
>>>>>>>> >>>>>>>>>>
Q–9. Is the required minimum
distribution from one IRA of an owner
permitted to be distributed from another
IRA in order to satisfy section 401(a)(9)?
A–9. Yes, the required minimum
distribution must be calculated
separately for each IRA. The separately
calculated amounts may then be totaled
and the total distribution taken from any
one or more of the individual’s IRAs
under the rules set forth in this A–9.
Generally, only amounts in IRAs that an
individual holds as the IRA owner may
be aggregated. However, amounts in
IRAs that an individual holds as a
beneficiary of the same decedent and
which are being distributed under the
life expectancy rule in section
401(a)(9)(B)(iii) or (iv) may be
aggregated, but such amounts may not
be aggregated with amounts held in
IRAs that the individual holds as the
IRA owner or as the beneficiary of
another decedent.
>>>>>>> >>>>>>>>>>>>
Permalink Submitted by Howard Hook on Wed, 2007-11-14 22:00
Alan,
Thanks as always.
I guess I was presuming that since if the IRA owner was still alive he would have been precluded from rolling over his RMD, that that would have applied after death.
I guess the IRS is only concerned that the decedents final RMD in the year of death be taken by a beneficiary during the calendar year in which the IRA owner died.
Howard