inherited IRA distribution not taken from Mother’s IRA

Submitted by Mary K. Dean on Thu, 2019-06-20 00:04

The father passed away in January 2018 and the Mother in August 2018. The Mother did not have an IRA but she was the sole beneficiary of the husband’s IRA. The husband’s IRA was transferred to the Mother’s IRA in 2018 before her death. The Mother’s IRA was not distributed to her beneficiaries (4 children) until 2019. The brokerage firm showed that she owed an IRA RMD based on her life expectancy on the January 2019 statement. In a footnote they also mentioned that they provided the IRS the year-end fair market value.

My understanding is that the 2019 IRA RMD should be an inherited IRA based on the children’s life expectancy. Both the Mother and Father were about 90. If that is correct, what should the brokerage firm do to avoid the IRS questioning the lower IRA RMDs taken by the children?

Many thanks as always …. Mary



Submitted by Alan - IRA critic on Thu, 2019-06-20 00:53

  • The children should create separate inherited IRA accounts ASAP. If they do so by 12/31/2019 each child can use their own age as of their birthday in 2019 to determine their 2019 beneficiary RMD. The custodian should issue a Form 5498 for each beneficiary indicating their share of the 12/31/2018 IRA balance from which their 2019 beneficiary RMD is calculated. That form would override the 5498 or statement that the custodian issued before having the beneficiary’s info.
  • But what about the 2018 RMD for Dad based on the 12/31/2017 balance. If he passed in January, he probably did not complete that RMD. If not, mother had to complete it, did she?

 



Submitted by Mary K. Dean on Fri, 2019-06-21 19:02

The Dad’s 2018 IRA RMD was not completed from his IRA nor his wife’s.  We are recommending a separate IRA distribution from each child’s IRA for the Dad’s IRA RMD based on the Dad’s age and life expectancy.  Should we tell the brokerage firm to issue a new form 5498 for 2018 as well?  Since they established the Mother’s account, I assumed they did that automacially but maybe not.  Many thanks again!  By the way, only one of the children is my client.  I told her to be sure her siblings take distributions from their inherited IRAs or she could be liable for the entire amounts!  



Submitted by Alan - IRA critic on Fri, 2019-06-21 19:55

For the 2018 year of death RMD, the IRS has never held a single beneficiary responsible for more than their pro rata share of the year of death RMD. So if the others renege, it should not affect your client. If you client takes out 25% of Dad’s RMD a 2018 5329 should be filed to request the penalty waiver since the year of death RMD should have been completed by 12/31/2018. Sometimes when there are several beneficiaries, one of them will take a large enough distribution to cover the entire year of death RMD, and if so the others do not have to take their share. For the year of death RMD only, it’s a joint requirement so as long as the amount is distributed it does not matter how that is split between the beneficiaries. Of course, this flexibility cannot be used without considerable communication and coordination between the beneficiaries. In some situations, this is not workable and then it is safer to just have each take their share and file the 5329 if it is late. I would not bother to ask the brokerage firm to correct any 5498 forms that were incorrect due to late re titling of the inherited IRAs. The 5498 Inst indicate that the custodian is not required  to correct any such forms. 



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