Inherited IRA RMD Requirement

I have a client whose father passed away in 11/07. He turned 70.5 in 2007. He took out about $2000 of his RMD, but not the remaining ~$1600 before he died. It is now 2008, and my client and his brother were left beneficiaries of his Fixed IRA Annuity.

1. Is it too late to take out the balance of the RMD before the Death Benefit proceeds are distributed, since it is no longer 2007, or do the beneficiaries have until 4/1/08, 0r 12/31/08 to take out the RMD?

2. If it is not too late…how does the RMD occur? e.g. Does it have to be paid before the Death Benefit? If one client is not rolling over his portion to a bene IRA, but taking it as a Lump-Sum, will that count as the RMD, even if the other brother wants to roll over the entire portion of his share?

Any insight into this would be much appreciated.
Thanks.



Since his father passed PRIOR TO his RBD, the rest of the 2007 RMD can just be forgotten. Since there was no requirement for the owner to take anything in 2007, the beneficiaries do not have anything to make up.

For 2008, the beneficiaries should have separate accounts established ASAP, and name their own beneficiaries, and the deadline for separate accounts is 12/31/08. As long as the separate accounts are set up by then, each brother can use his own non recalculated life expectancy to determine RMDs. However, since one brother wants a lump sum in 2008, that should be completed in plenty of time to have the account properly titled as a separate account of the other brother. And the lump sum will satisfy the RMD for the entire account for 2008 for both brothers, allowing the brother who is stretching the benefit to avoid an RMD for 2008. Since this is an annuity, the year end FMV value for RMD purposes may be more than the cash value if there are any fringe benefits that exceed a minimum tolerance. That figure must be provided by the insurer, but due to the lump sum share paid in 2008, this would not affect the RMD for the other brother until 2009.

Finally, be sure the brother maintaining his beneficiary interest only moves the account by direct transfer, as he CANNOT roll over the balance as a non spouse beneficiary. Any distribution would be fully taxable.



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