Client passed away in Nov of 2021 before taking RMD. In addition, an RMD was never distributed as the two beneficiaries were unresponsive. We're finally able to distribute to the beneficiaries as two Inherited IRAs. I'm guessing we'll need to distribute RMDs for 2021 as soon as possible and then take RMDs by year end for 2022.
Does the RMD come out on the IRA side before the transfer to the Inherited IRAs? Do we distribute the missed RMD to the estate?
The late year of death RMD
The late year of death RMD can be distributed in any combination by the beneficiaries from their own inherited IRAs, but because this was not done in 2021, they will each have to file a 2021 5329 after making up the RMD to request a penalty waiver. Given that they were already unresponsive, it would be preferable if they split the remaining year of death RMD if they were equal beneficiaries. They will then have to monitor the final Secure Act Regs if they are 10 year rule beneficiaries to determine if they will have to take an annual RMD within the 10 year rule, which the proposed Regs will require if the IRA owner passed after their RBD. If you are the custodian, you do not have to force out the year of death RMD due to the IRA RMD aggregation rules, and if the beneficiaries wanted it distributed, it would be done from their inherited IRAs with 1099R going to the respective beneficiary. The estate is not involved in this process unless the estate is the IRA beneficiary.
Value as of 12/31/2021 for 2022 RMD
Assuming a few things:
Do we use the 12/31/2021 actual value of $100k? Or are we able to "take out the RMD" since it was supposed to be taken out prior to the end of the year so ($100k - $5k = $95k) to calulate the 12/31/2021 value for the RMD calc?Thanks!
You use the actual 12/31/2021
You use the actual 12/31/2021 value with no adjustment for a late-taken 2021 RMD. The IRS used to say to reduce the year-end value by the amount of the late-taken RMD, but they changed that many years ago to say not to make such an adjustment.