Year of Death RMD
If person dies and their IRA is distributed to the two non-spouse beneficiary IRA accounts before the end of the year of death, does this qualify as a distribution meeting the requirement of the small remaining amount of RMD the deceased had not taken prior to death? Or does an actual check have to go to the “estate of deceased” for the small remaining year of death RMD amount? Thanks.
Permalink Submitted by Alan - IRA critic on Mon, 2016-01-04 19:12
A distribution to a beneficiary will satisfy the remaining year of death RMD, but it sounds like there was no distribution in this case, just a direct transfer to the non spouse beneficiary IRA accounts. To complete the year of death RMD, there must be an actual taxable distribution made in any combination to these beneficiaries. No amount would be distributed to the estate unless the estate was the actual beneficiary of the IRA. Therefore, if the person passed in 2015, the beneficiaries need to finish the year of death RMD now and then file a 5329 with their 2015 returns requesting that the IRS waive the 50% penalty. Normally, the IRS will waive the penalty if the beneficiary acts within a reasonable period.
Permalink Submitted by Jody Howard on Mon, 2016-01-04 20:17
Thank you. Just to clarify, the 5329 needs to be filed with the 2015 final tax return for the deceased, or the 2015 individual returns for the beneficiaries of the IRA? There was not a distrubution but a direct transfer to bene IRAs due to some incorrect information from the custodian about what was needed to process the remaining RMD amount in conjunction with processing the claims forms for the bene IRAs. Thanks.
Permalink Submitted by Alan - IRA critic on Tue, 2016-01-05 01:19
I am assuming that the beneficiaries inherited directly by being named on the IRA agreement. Once the owner passed, the obligation to complete the year of death RMD transferred to the beneficiaries. Therefore, the beneficiaries were responsible to complete the year of death RMD by 12/31/2015 so they would file the 5329 for each beneficiary. The IRS is used to a delay since it usually takes months to ferret out estate related issues and determine the status of the owner’s last RMD. Note that if there are two beneficiaries, the year of death RMD can be completed in any combination between them, so if one needs the money more, then that one can take the full year of death RMD. For 2016 and beyond, they each must take their own life expectancy RMDs. The year of death RMD will be taxable in the year distributed (2016).
Permalink Submitted by Jody Howard on Tue, 2016-01-05 14:55
Thank you. Yes on the bene form naming same. So 5329 with bene’s 2016 return since it will be paid at this point in ’16. Tks.
Permalink Submitted by Alan - IRA critic on Tue, 2016-01-05 15:55
No, the 5329 is filed with beneficiary’s 2015 return because that is the year they should have completed the year of death RMD and 2015 is therefore the year the penalty waiver request applies to. The late RMD in 2016 is reported on the 2016 return, but the 5329 is required with the 2015 return.