Misdirected RMD Post Death
In 2018, mother died at age 84. 2018 RMD was partially completed by date of death, via monthly withdrawals. However, RMD withdrawals continued to be made (direct deposited to mother’s bank account). RMD was completed before the end of 2018.
IRA beneficiaries were also named on mother’s bank account, and, having access to the funds, saw no disadvantage to the distributions continuing after death in the manner described.
The IRA beneficiaries did not act to rollover the IRA assets into Inherited IRAs until 2019.
Mother’s 1099-R reports the full amount of 2018 RMD, including the portion taken post-death. It is understood that the beneficiaries are to claim the post-death IRA distributions as income in 2018.
What is the correct procedure for the beneficiaries to report their shares of post-death IRA distributions on their 2018 tax returns (and for mother’s tax return to report only the pre-death IRA distributions)? Is this simply reported as a distribution to a nominee on mother’s return and then Misc Income on the nominee returns?
Permalink Submitted by Alan - IRA critic on Wed, 2019-04-17 18:24
Mother’s final return should use the nominee process and subtract out distributions made post death. While the beneficiaries were responsible for completing the year of death RMDs in any combination, it would be more efficient to nominate the income in proportion to their inherited portions, likely equally. The beneficiaries should then report the income on their 2018 returns as line 4 1099R income as these are RMDs, not misc income. Also, if Mother had any IRA basis Form 8606 needs to be completed for Mother using the DOD value of all her IRAs and by the beneficiaries to apply the basis they inherited.
Permalink Submitted by Thomas Wielgus on Wed, 2019-04-17 19:15
Thank you for your response.Are 1099-Rs required to be issued by mother’s representative to the beneficiaries, or is there a simpler workaround? My concern is in having the IRS match up the additional income to the beneficiaries with the reduced income claimed on the decedent’s return.
Permalink Submitted by Alan - IRA critic on Wed, 2019-04-17 20:13
Technically, whoever is filing Mother’s final return should issue 1099R forms to the beneficiaries, but I’m sure the IRS rarely sees optimum coordination between the transferors of this income and the transferees, but they usually figure it out. Would be helpful if they used the same tax preparer, but that’s wishful thinking.