RMD not taken in year of death, 5329 filed, what to do now?
Hello,
I am trying to prepare my mom’s taxes an am so confused.
Hello,
Here are the facts:
1. My dad passed away 11/2010 (92 yrs)
2. RMD not taken due to shock
3. Form 5329 was filed
4. My mom (beneficiary) took the required distribution in 2011
Because she took the RMD in 2011 along with hers, she owes $500 in taxes on my dad’s $3900 RMD whereas if she had taken in 2010 her tax liability for both 2010 and 2011 would be 0. However, in the tax program I am using if I select that the IRA was inherited, it drops the tax liability for 2011 to 0.
My questions are:
1. Is this an inherited IRA?
2. Is is possible to amend the 2010 return and add the $3900 to income even though it was received early in 2011 (silly question, I know)
3. I am so sad that she has to pay due to this oversight, is there something I am missing to avoid it?
Thank you in advance…I have been researching this for days and can’t find a difinitive answer.
Permalink Submitted by Alan Spross on Wed, 2012-04-11 04:33
1) Your Dad’s IRA was inherited originally, but your Mom may have assumed ownership of it or rolled it over as her own IRA. However, this should not make any difference whatsoever on her 2011 single return. An IRA distribution is taxable whether it is owned or inherited, so you must be doing something wrong with the tax program entry.
2) No, all distributions are taxable in the year received, ie the year the 1099R indicates.
3) What about her own RMD for 2011? She took your father’s RMD for 2010 in 2011 and would have had to take her own RMD as well in 2011.
The Form 5329 you mentioned should have been on the 2010 return.
But I do not understand why the program is changing the tax due with respect to the IRA status as inherited vrs owned. It’s $3900 of income either way.
Permalink Submitted by allie neale on Thu, 2012-04-12 03:53
Thank you for your help, alan-oniras. I appreciate you taking the time to answer my questions. You confirmed what I thought…that the distribution is taxable to my mom in 2011. She did receive her 2011 RMD in addition and the 5329 was filed for 2010. I am going to look at Turbotax again to see if I made an error regarding the inherited question, but I don’t think so. It was just a box that I checked saying the IRA had been inherited and magically her tax due went to zero. Thank you again.
Permalink Submitted by Alan Spross on Thu, 2012-04-12 04:24
If you figure out what caused the inherited indicator to eliminate the tax bill, please post back.
Do you have her age entered into the program? Just wondering if the $500 might be the 10% early distribution penalty, which of course should not apply to her. Indicating that an IRA was inherited would eliminate any early distribution penalty that would otherwise have applied.
Permalink Submitted by allie neale on Thu, 2012-04-12 16:45
I checked and my mom’s age is entered, as well as that she was widowed in 2010.
When I check the box that says “No, I did not inherit this IRA” , a federal tax due amount is calculated.
When I check the box that says “Yes, I inherited this IRA”, the program asks if it was inherited from a spouse or someone else.
I checked off “spouse” and three option appear:
I put the money into my own IRA account in 2011
I put the money into my own IRA account in 2010 or prior year
I did not put the money into my own IRA account
Selecting the first option elimates the tax while the second and third options generate tax.
So, my dad’s RMD for 2010 was not made in 2010, the IRA was transferred to my mom’s account in January 2011, my dad’s 2010 RMD was withdrawn in February 2011 and my mom’s 2011 RMD was withdrawn in December 2011. What a mess as it is causing a portion of her social security income to be taxed.
Permalink Submitted by Alan Spross on Thu, 2012-04-12 17:11
OK, that explains it.
The option without the tax was a spousal rollover of the IRA. But that would not apply to any RMD amount since an RMD cannot be rolled over. The new question is whether you have a 1099R showing amounts distributed of the entire account, not just the RMD, and the amount in excess of the RMD was rolled over????
Permalink Submitted by allie neale on Thu, 2012-04-12 17:27
alan-oniras:
Thank you again for your very quick reply. The 1099-R shows only the RMD, and my mom’s 2011 RMD, not the total amount of the IRA that my mom took over (both with a distribution code of 7 for a normal distribution.
Are you saying that the program is thinking that this is the IRA amount that was rolled into my mom’s account, and it can’t distinguish between that and a prior year RMD, and that I should select “I did not put the money into my own IRA account”? Ahhh, I understand now.
Permalink Submitted by allie neale on Thu, 2012-04-12 18:00
It is unfortunate that a two day delay (funds were withdrawn 1/2/2011) had such a costly impact.
Thank you again for your help!
Permalink Submitted by Alan Spross on Thu, 2012-04-12 18:01
A distribution code of 7 is only used for an owned IRA. If your mother continued this IRA in inherited form, distributions would be coded “4” (death benefit). A 7 indicates that she either assumed ownership or rolled it over to her own IRA account. It is good that this was done as it will benefit her future beneficiaries and reduce her RMDs vrs keeping it in inherited form.
Not sure if your earlier reference to her taking RMD “along with hers” indicates that she owned her own IRA all along or you were just referring to her 2011 RMD from the account that was originally your Dad’s.
Permalink Submitted by allie neale on Thu, 2012-04-12 18:48
In January of 2011, my dad’s IRA was rolled into my mom’s existing IRA. My dad’s 2010 RMD that wasn’t taken until 2011 and my mom’s 2011 RMD appear on the same 1099-R because they were both taken from the same account. I don’t know why my dad’s RMD wasn’t taken out before it was rolled into my mom’s, maybe because she had forgotten to make the withdrawl.
Permalink Submitted by Alan Spross on Thu, 2012-04-12 21:16
That’s OK, only issue remaining is that I hope her 2011 RMD based on the total 12/31/2010 balance was sufficient (not counting the delayed 2010 RMD taken in 2011).
Permalink Submitted by allie neale on Fri, 2012-04-13 04:08
Oh, I did not think about that. I will have to check that out. Thank you so much for all your help, I really, really appreciate it!