By Joe Cicchinelli, IRA Technical Expert
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If you are the beneficiary of a deceased IRA owner, you have to begin taking required minimum distributions (RMDs). In some cases, there is an RMD you must take in the year the IRA owner dies.
The required beginning date (RBD) for the IRA owner to have started taking their RMD is April 1 after the year they turned age 70 ½. If the IRA owner died before their RBD, there is no year of death RMD that you need to take. However, if the IRA owner died after their RBD, there may be an RMD that you as their beneficiary have to take that year.
Basically, when the IRA owner dies on or after that April 1 RBD, he was in pay status and he should have been taking RMDs. In the year that he died, first check to see if he took his total annual RMD amount before he died. If he did, you don’t have to take a distribution that year. If he didn’t, then you as his IRA beneficiary have to take that unpaid RMD amount.
The custodian should calculate his unpaid RMD amount in the year he died based on the age he would have been that year if he hadn’t died. It’s very common that there is an unpaid RMD for the IRA owner’s year of death for several reasons. First, he may have waited until year end to take his full RMD amount, or maybe he was taking his RMD on a monthly basis. Regardless, if he hadn’t taken some or all of his RMD that year, you’re responsible for taking the unpaid amount.
The RMD will be taxable to you as his IRA beneficiary in the year you receive it. It’s not taxable to him or his estate. If you, as the beneficiary, don’t take the unpaid year of death RMD, you’re subject to a 50% penalty on the shortfall.