Year-of-death RMD and spouse rollover
I am helping my father with getting my mother’s IRA rolled into his. She passed away in June and had not taken out her 2012 RMD. My mother and father have their IRAs at the same credit union. They are both in their 80’s.
Am I correct that the year-of-death RMD should be take out before rolling the funds to my father’s account?
When I mentioned that to the woman who handles the IRAs for the credit union she seemed hesitant, and I’m not sure if she thinks it’s not required to be done that way, or if it’s not supposed to be done that way, or if she’s just never done it that way and doesn’t know the procedure, or what. At any rate, we’re sending her the death certificate, she will send us back an IRA kit, and I will speak with her again after that.
I think these are my three options for dealing with the credit union, and I’d appreciate your comments on each. I prepare my father’s income tax returns in TurboTax and I don’t want to create a big tax headache for myself.
1. Ask them to do the RMD as a check to my father and then roll the IRA into his after that. My concerns are if the person has never done this before it might get done incorrectly, or the 1099-R might be done improperly. If the credit union mistakenly makes the check out to my mother or her estate it would be a problem because we are not opening an estate for her.
If the RMD were done properly for this option the 1099-R should be in my father’s name with his SSN, correct? What would be the code for the distribution?
2. If the credit union won’t do option 1, would the next best option be to request an inherited IRA? Then we could immediately take out the 2012 RMD, and after that roll the inherited IRA into my father’s IRA. At least with this case it would be somewhat clear that the distribution was my mother’s.
What is the distribution code for on the 1099-R in this case? Also, would I need to add a statement to my father’s tax return explaining what was done?
What would the issues be for me and my siblings if my father happened to pass away while the IRA was still an inherited IRA?
3. Roll the IRA into my father’s and take the year-of-death distribution out immediately after that. How bad would this be for dealing with the IRS and TurboTax?
What would the distribution code for the 1099-R be for this case, and would I need to add a statement to my father’s tax return?
Permalink Submitted by Alan Spross on Tue, 2012-09-04 20:07
Sorry to hear of your loss.
You are correct, and Option 1 is the way to go. Be sure to emphasize that the check is to be made out to your father, the IRA beneficiary. Perhaps with this custodian it is best to request the check and wait until they get that right before doing the rollover. In the end you may get one combined 1099R distribution code 4, but that’s not a problem since you would just report it all on line 15a with only the RMD amount on 15b. “Rollover” should show on the line next to 15b.
Most custodians will establish an inherited IRA anyway to establish the change in ownership and for distributions to the beneficiary whether the rollover is done or not.
You will probably be doing a final joint tax return for 2012, but there is no need for any special explanatory statements in this respect.
When you send in the death cert, have your father name his own successor beneficiaries at the same time to reduce any lag time in rolling this over. Of course, he would also change the beneficiary on his own IRA accounts ASAP to avoid his estate becoming the beneficiary if he were to pass. If he passed with his estate as default beneficiary, your stretch would be seriously limited to his remaining life expectancy.
With respect to Q 3, this happens all the time, and distributions after the rollover would be coded 7 instead of 4. Technically, her RMD is not eligible for rollover, but in the cases where this happens, the surviving spouse simply takes out the RMD from their own IRA and this passes the IRS fine. Technically however, rolling the RMD over is an excess contribution and should be corrected as such although it rarely is done the technically correct way.
Permalink Submitted by Ginny Trautman on Tue, 2012-09-04 22:55
Thank you so much! I am going to try to get the RMD issued by check before proceeding with the rest of the rollover.
My father doesn’t have a beneficiary form to send with the death certificate, so may he name the successor beneficiaries by simply writing a letter?
Permalink Submitted by Alan Spross on Tue, 2012-09-04 23:02
He could try that, but no guarantee they would accept it. Nothing lost by trying however. Perhaps he should request them to send him their own form ASAP if that is a requirement. A beneficiary appointment is only effective upon acceptance by the custodian. Of course, if he had a contingent beneficiary on his current IRA that is the same as intended, it would take the time pressure off that account as the contingent would govern since your mother pre deceased him. But that would not change the urgency on the inherited IRA prior to the rollover.
Permalink Submitted by mk foss on Tue, 2012-09-04 23:10
If he’s opening a rollover IRA or an inheited IRA, he will need to complete a beneficiary form.
If he’s rolling proceeds into his existing IRA, he’ll have to find out what the credit union requires for beneficiary changes. In any case, the new beneficiary form should be copied and kept because these things seem to go missing at the most inconvenient time. With all of the financial institution mergers and changes in physical location, it’s always a good idea to fill out new beneiciary forms and keep copies.
Permalink Submitted by Ginny Trautman on Tue, 2012-09-04 23:38
Thank you to both of you.