IRA RMD in year of owner’s death
My mother passed away in August 2010 at age 83 before taking her tax year 2010 RMD from her traditional IRA. Beneficiaries are her three children. I am executor of her estate and one of the children beneficiaries. I asked the custodian to take my mother’s whole 2010 RMD out of her IRA, and then distribute the remaining balance of the IRA into three beneficiary IRA accounts for the children. The custodian refused, saying that the IRA must first be distributed to the beneficiaries, who would then each be responsible for taking out one third of the total RMD owed by my mother.
This seem nonsensical to me. My understanding is that I will need to file a 1040 for my mother for 2010, and that this 1040 needs to report her RMD and pay its tax liability. If the RMDs are made to the beneficiaries and their SSN’s, how possibly could these monies be attributed back to my mother’s 1040 obligation? Or am I wrong that the 2010 RMD needs to be reported on my mother’s 2010 1040? Thanks.
Permalink Submitted by Anonymous (not verified) on Wed, 2010-10-06 22:05
The custodian is right. You can not create a taxable event for a deceased person, despite the RMD requirement. Final RMD Regulations state it must be satisfied by the beneficiaries.
pko
Permalink Submitted by Richard Clarke on Thu, 2010-10-07 14:12
OK, so the answer is that beneficiaries take the 2010 RMD (based on what my mother owed for a RMD) on their personal tax returns; and my mother’s 1040 for 2010 should show no RMD. Then, in 2011, the beneficiaries start to take continuing RMDs based on their own life expectancies (assuming they choose this option). Is this correct? Thanks.
Permalink Submitted by Alan Spross on Thu, 2010-10-07 20:21
Yes, that is correct. Consolences for your loss.
Her RMD could have been distributed to each beneficiary prior to actual creation of the separate IRA accounts under separate accounting within the beneficiary IRA. However, since you desire actual separate IRA accounts anyway which is to each beneficiary’s advantage, doing it the custodian’s way makes sense.
You will each get a 1099R reporting the 2010 distribution. Also note that the IRS is satisfied as long as the full RMD is distributed. They don’t require it to be distributed equally to each beneficiary. If one of you needs the funds and the others do not, then that beneficiary could take the entire RMD and the other two would not have to receive a taxable distribution until 2011.
Permalink Submitted by Richard Clarke on Fri, 2010-10-08 15:09
Thanks so much for all of the great information. You even anticipated my next question of whether it was OK to divide the RMD payment unevenly among the beneficiaries so long as the total was OK. 😀 😀 😀 This is very useful board.
Permalink Submitted by Scott Nyland on Mon, 2011-10-17 15:09
Do you know where I can find the IRS regulation that covers this topic? I have read IRS590 and it doesn’t specifically state what has been described in the above posts. There must be some other source of this information.
Great forum!
Permalink Submitted by Alan Spross on Mon, 2011-10-17 17:42
The following is copied from IRS Regs 1.401(a)(9)-5, Q&A 4:
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Q–4. For required minimum distributions during an employee’s lifetime, what is the applicable distribution period?
A–4. (a) General rule. Except as provided in paragraph (b) of this A–4, the applicable distribution period for required minimum distributions for distribution calendar years up to and including the distribution calendar year that includes the employee’s date of death is determined using the Uniform Lifetime Table in A–2 of §1.401(a)(9)-9 for the employee’s age as of the employee’s birthday in the relevant distribution calendar year. If an employee dies on or after the required beginning date, the distribution period applicable for calculating the amount that must be distributed during the distribution calendar year that includes the employee’s death is determined as if the employee had lived throughout that year. Thus, a minimum required distribution, determined as if the employee had lived throughout that year, is required for the year of the employee’s death and that amount must be distributed to a beneficiary to the extent it has not already been distributed to the employee.
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Note that other Regs indicate that the IRA owner is substituted for the employee for purposes of these Regs. This is all the IRS has released, ie “must be distributed to a beneficiary”. When there are multiple beneficiaries, “a beneficiary” could mean any one of them. In cases where one beneficiary wants the money then they can take the entire RMD for the decedent and of course the remaining shares must be adjusted so that each beneficiary still inherits the same total amount as if they split the RMD in proportion. The IRS Regs only indicate that the RMD must be withdrawn for the year of death. The Regs make no mention what is to happen if the decedent had delinquent RMDs going back well prior to passing.
There has not been any cases reported where the IRS had any issues with WHICH beneficiary completed the RMD. Proper accounting of remaining shares is the responsibility of the IRA custodian.
I assumed that the above was the topic you were concerned with. If something else, please advise.