Decedent never took IRA RMDs
As estate executor, I learned that the decedent failed to ever take required minimum distributions from her IRA, from 1992 until her death in 2018. The beneficiary of the IRA are adult children. It seems that the estate is liable for a large (50%) penalty for excess accumulation in the IRA, which would likely require filing Form 5329 for each of the years in question. Perhaps a waiver of penalty can be sought when filing the 5329s, but showing reasonable cause is problematic. Does the IRS routinely pursue estates for penalty on a decedent’s failure to take annual RMDs? Any suggestions as to how to proceed and the mechanics of doing so?
Permalink Submitted by Alan - IRA critic on Wed, 2019-03-20 20:47
The IRS rarely pursues estates for past RMD issues, and the IRS Regs are silent with respect to estate responsibility except that the estate is specifically responsible for completing the year of death RMD per IRS Reg 1.401(a)(9)-5, QA 4. That RMD would apparently be around 26% of the IRA balance, with only a 3 year distribution period remaining, so the IRS will be getting their tax money soon. If you decide to assign the IRA to the beneficiaries of the estate, you need to get them to sign a form waiving any liability you would have to them for assigning the IRA despite years of delinquent RMDs. Who knows what the IRS does with the 5498 forms indicating an RMD is due with no action on their part for 26 years?
Permalink Submitted by David Mertz on Wed, 2019-03-20 21:18
I’m not sure if the question is indicating that the adult children are designated beneficiaries of the IRA or if instead the estate was the beneficiary of the IRA and the adult children are receiving the IRA through the estate. If the adult children are designated beneficiaries of the IRA, the distribution period would be considerably more than 3 years.
Permalink Submitted by Alan - IRA critic on Wed, 2019-03-20 22:53
If the IRA was left directly to the children, they would jointly (not necessarily pro rata) be responsible for completing the year of death RMD and would have a longer stretch. However, that shouldn’t increase their potential exposure to the multi year RMD shortfall of the decedent.