Year of Death RMD

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Year of Death RMD

Postby bru » Wed Apr 03, 2013 8:42 pm

I asked this on irahelp.com but thought Alan S. might see it here first. Of course I'd like to hear any other thoughts as well.

My brother and I were named as equal beneficiaries for our father's Traditional (Rollover) IRA. It did not go to his estate or Trust.

I have read this article http://www.theslottreport.com/2010/09/y ... h-rmd.html and have some questions about the Year of Death RMD.

Since my father did not take his RMD for 2013 (he was well past his RBD) I believe an RMD using his Life Expectancy has to be taken (what he would have been required to take if he were still alive).

Is this correct? If so, can his estate or Trust take the RMD? If allowable, then we as beneficiaries would not have to take this RMD, and therefore not be taxed on it.
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Re: Year of Death RMD

Postby Iorek » Wed Apr 03, 2013 9:06 pm

From IRS Pub 590:

"Distributions in the year of the owner's death. The required minimum distribution for the year of the owner's death depends on whether the owner died before the required beginning date, defined earlier.

If the owner died before the required beginning date, see Owner Died Before Required Beginning Date , later under IRA Beneficiaries.

If the owner died on or after the required beginning date, the required minimum distribution for the year of death generally is based on Table III (Uniform Lifetime) in Appendix C. However, if the sole beneficiary of the IRA is the owner's spouse who is more than 10 years younger than the owner, use the life expectancy from Table II (Joint Life and Last Survivor Expectancy).

Note.

You figure the required minimum distribution for the year in which an IRA owner dies as if the owner lived for the entire year."


I understand that to mean the estate takes a distribution for the final year (note there is a special option for a spouse who wants to become owner of the IRA that is not relevant here).
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Re: Year of Death RMD

Postby fire5soon » Thu Apr 04, 2013 8:32 am

First, my condolences on your loss.

Since you and your brother are named as beneficiaries the account assets belong to the two of you, not the estate or a trust. Therefore it's your responsibility to satisfy the RMD. What should happen is an inherited IRA should be established for you, and one for your brother, and the RMD taken from those accounts. The 1099R issued will be under your SSN, but will show your father as the original depositor showing you are satisfying the RMD on his behalf. Then starting next year the RMD will begin based on your Single Life Expectancy.

If he had multiple IRA's it's possible he may have satisfied the RMD from another account. The IRS allows RMD's from IRA's to be aggregated and taken from a single account rather than making you take one from every individual IRA.

Since it sounds like he missed his 2012 RMD as well you may have to file an extra tax form (Form 5329 I believe) to essentially ask forgiveness of the 50% penalty for missed distributions. This is something you may want to talk to a tax adviser about.

Again, sorry for your loss. Hopefully this will get you headed in the right direction.
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Re: Year of Death RMD

Postby bru » Thu Apr 04, 2013 10:03 am

fire5soon wrote:Since you and your brother are named as beneficiaries the account assets belong to the two of you, not the estate or a trust. Therefore it's your responsibility to satisfy the RMD. What should happen is an inherited IRA should be established for you, and one for your brother, and the RMD taken from those accounts. The 1099R issued will be under your SSN, but will show your father as the original depositor showing you are satisfying the RMD on his behalf. Then starting next year the RMD will begin based on your Single Life Expectancy.


I read that the Year of Death RMD comes out of the account before it becomes an inherited IRA. Meaning the IRA balance is reduced by the RMD before it is transferred to the beneficiaries. Hopefully the custodian of his IRA will know these things.
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Re: Year of Death RMD

Postby Alan S. » Thu Apr 04, 2013 3:05 pm

bru wrote:
fire5soon wrote:Since you and your brother are named as beneficiaries the account assets belong to the two of you, not the estate or a trust. Therefore it's your responsibility to satisfy the RMD. What should happen is an inherited IRA should be established for you, and one for your brother, and the RMD taken from those accounts. The 1099R issued will be under your SSN, but will show your father as the original depositor showing you are satisfying the RMD on his behalf. Then starting next year the RMD will begin based on your Single Life Expectancy.


I read that the Year of Death RMD comes out of the account before it becomes an inherited IRA. Meaning the IRA balance is reduced by the RMD before it is transferred to the beneficiaries. Hopefully the custodian of his IRA will know these things.


It can't come out before the IRA is retitled because it must be paid to the beneficiary(s), not to the estate or trust. It CAN come out before separate accounts for each of you are established, but that could result in accounting problems for the custodian since the year of death RMD does not necessarily have to be taken equally. For example, if your brother needs the funds, he could individually satisfy the entire year of death RMD, leaving your share untouched until you take your first beneficiary RMD before the end of 2014. The IRA custodian may have preferences regarding the year of death RMD (which does not HAVE to be withdrawn until Dec, 2013) with respect to issuance before or after separate accounts are established. But if you want to wait until the separate accounts are established and then coordinate the year of death RMD with your brother, the custodian should allow that.

The IRS Regs are silent regarding any delinquency of prior year RMDs by the owner. They only state that the beneficiary is responsible for the year of death RMD, so you have no obligation to research whether your father completed all his RMDs back to age 70.5. I have never heard of the IRS penalizing a beneficiary for anything more than the year of death RMD.

Finally, as fire5soon indicated, be sure there are no other IRAs that might have been tapped for the 2013 RMD. In addition, check to see if your father had an basis in his IRA (Form 8606) that you would inherit and result in your RMDs being less than 100% taxable. And name your own successor beneficiaries on the inherited IRA ASAP.
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Re: Year of Death RMD

Postby bru » Fri Apr 05, 2013 1:43 pm

Alan S. wrote:It can't come out before the IRA is retitled because it must be paid to the beneficiary(s), not to the estate or trust. It CAN come out before separate accounts for each of you are established, but that could result in accounting problems for the custodian since the year of death RMD does not necessarily have to be taken equally. For example, if your brother needs the funds, he could individually satisfy the entire year of death RMD, leaving your share untouched until you take your first beneficiary RMD before the end of 2014. The IRA custodian may have preferences regarding the year of death RMD (which does not HAVE to be withdrawn until Dec, 2013) with respect to issuance before or after separate accounts are established. But if you want to wait until the separate accounts are established and then coordinate the year of death RMD with your brother, the custodian should allow that.


Thanks Alan. One more question, how can the custodian take out the RMD before separate accounts are established? Since we are both named as equal beneficiaries don't we each have to set up an inherited IRA account before the custodian can do anything? Then when the accounts are established we could decide if we want to split the RMD or whatever. I don't understand how the RMD can "come out before separate accounts for each of you are established". Thanks.
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Re: Year of Death RMD

Postby cherijoh » Fri Apr 05, 2013 7:13 pm

My brother & I inherited my Mom's Vanguard IRA several years ago. We split the IRA into 2 inherited IRA's and then each took a distribution equal to half of her required distribution in year of her death.
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Re: Year of Death RMD

Postby James2 » Sat Apr 06, 2013 1:27 pm

I think the best thing would be to have the IRA split between you and then figure out the RMD. Different rules come into play if you take an RMD before splitting. More details on the wiki.

http://www.bogleheads.org/wiki/Inheriting_an_IRA
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Re: Year of Death RMD

Postby Alan S. » Sat Apr 06, 2013 6:56 pm

bru wrote:
Alan S. wrote:It can't come out before the IRA is retitled because it must be paid to the beneficiary(s), not to the estate or trust. It CAN come out before separate accounts for each of you are established, but that could result in accounting problems for the custodian since the year of death RMD does not necessarily have to be taken equally. For example, if your brother needs the funds, he could individually satisfy the entire year of death RMD, leaving your share untouched until you take your first beneficiary RMD before the end of 2014. The IRA custodian may have preferences regarding the year of death RMD (which does not HAVE to be withdrawn until Dec, 2013) with respect to issuance before or after separate accounts are established. But if you want to wait until the separate accounts are established and then coordinate the year of death RMD with your brother, the custodian should allow that.


Thanks Alan. One more question, how can the custodian take out the RMD before separate accounts are established? Since we are both named as equal beneficiaries don't we each have to set up an inherited IRA account before the custodian can do anything? Then when the accounts are established we could decide if we want to split the RMD or whatever. I don't understand how the RMD can "come out before separate accounts for each of you are established". Thanks.


It can be done, but since it requires accurate accounting for each beneficiary's remaining share by the custodian, it is not advisable except in unusual circumstances and most custodians would not want to do it. By far the best procedure is to establish separate inherited IRA accounts altogether and then take the year of death RMD. The only problem then is coordination between the beneficiaries to be sure the year of death RMD is completed, since if one beneficiary neglects to take the RMD, there is no guarantee the IRS will not pursue a penalty from each beneficiary, since they are jointly responsible.
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Re: Year of Death RMD

Postby bru » Mon Apr 08, 2013 11:49 pm

Alan S. wrote:It can be done, but since it requires accurate accounting for each beneficiary's remaining share by the custodian, it is not advisable except in unusual circumstances and most custodians would not want to do it. By far the best procedure is to establish separate inherited IRA accounts altogether and then take the year of death RMD. The only problem then is coordination between the beneficiaries to be sure the year of death RMD is completed, since if one beneficiary neglects to take the RMD, there is no guarantee the IRS will not pursue a penalty from each beneficiary, since they are jointly responsible.

I don't think me and my brother will have an issue coordinating the RMD. My father handled all my brother's finances and I know he feels a bit concerned/confused about how things will go moving forward. He has to do his own taxes for the first time. Regarding the IRA, I will offer my suggestions on how to proceed but I think he is a bit too proud to ask his younger brother for other help. Hopefully he handles things ok.
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