Question about RMDs from inherited IRA

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
Topic Author
CashConfessions
Posts: 26
Joined: Sun Apr 02, 2017 10:24 pm

Question about RMDs from inherited IRA

Post by CashConfessions » Fri Jun 07, 2019 4:46 pm

Hello, all.

Earlier this year, my grandmother (97) passed away. I was named the beneficiary of her IRA, valued at approx. $65K. She had automatic monthly withdrawals to meet her RMD, and didn't come anywhere near her total RMD (~$7K).

My understanding from talking with Fidelity is that I need to take her full RMD by the end of this year. I'm a high earner, and would rather not take the tax hit, but it doesn't seem that there's anyway to distribute the RMDs to her estate (which would be at a very low tax).

Can you please confirm or correct my understanding?

Thank you.

jebmke
Posts: 9782
Joined: Thu Apr 05, 2007 2:44 pm

Re: Question about RMDs from inherited IRA

Post by jebmke » Fri Jun 07, 2019 4:51 pm

I'm not an expert but when my FIL passed away, I think the executor had to arrange for the RMD to be made to the estate to satisfy HIS RMD for the tax year of his death before the IRA was split out and transferred to the beneficiaries. Once the transfer was made, the beneficiaries had to do their own RMD the next year (and subsequent years thereafter).

Edit: I went back and found that this was the case. For the year he died, there is no RMD on our tax return. For the year after he died, we reported my spouse's RMD -- an "inherited IRA." I'm assuming that his RMD appeared on the 1065 filed for the estate but I don't have a soft copy of that.
When you discover that you are riding a dead horse, the best strategy is to dismount.

Flora
Posts: 46
Joined: Sat Mar 26, 2016 6:19 am

Re: Question about RMDs from inherited IRA

Post by Flora » Fri Jun 07, 2019 6:21 pm

Consider disclaiming the inherited IRA so that it goes to your child/children if you gave any.

megabad
Posts: 2460
Joined: Fri Jun 01, 2018 4:00 pm

Re: Question about RMDs from inherited IRA

Post by megabad » Fri Jun 07, 2019 6:39 pm

CashConfessions wrote:
Fri Jun 07, 2019 4:46 pm
Can you please confirm or correct my understanding?
Sounds right to me but not a lawyer. My understanding of the regulations is that the RMD goes to the beneficiary (but is based on what it should have been for decedent).

ccieemeritus
Posts: 628
Joined: Thu Mar 06, 2014 10:43 pm

Re: Question about RMDs from inherited IRA

Post by ccieemeritus » Fri Jun 07, 2019 10:28 pm

My kids inherited IRA's from my Mom. So I have some experience. But I am not a lawyer or tax expert. Lets go to the official IRS documentation:

https://www.irs.gov/publications/p590b

EDIT: The hardest part of reading 590b is keeping track of which type of IRA they are talking about. For example, don't follow the instructions for an inherited Roth IRA.

This is a "other than spouse" inherited IRA.

Your grandmother was required to take RMDs, so you are required to take RMDs.

Since your grandmother was well over 70, she died after "the required beginning date".

"If the owner died on or after the required beginning date, the IRA beneficiaries are responsible for figuring and distributing the owner's required minimum distribution in the year of death. The owner's required minimum distribution for the year of death generally is based on Table III (Uniform Lifetime) in Appendix B"

Based on the above, I believe for the year of death, that will be the large distribution based on your grandmother's age as of January 1st of this year (might be 97 or 96). I believe you should subtract the distributions she already took in 2019 to calculate the remaining RMD.

In subsequent years it will be based on your age (so smaller required distribution). The instructions for figuring this out are complex but we'll leave that for another time.

While this may seem like a "tax hit", it is income tax on new money. You can have Fidelity withhold a reasonable federal and state tax percentage. Your Grandmother didn't need to pay tax on this while it accumulated and now the government is calling that bill due.

User avatar
Mlm
Posts: 419
Joined: Sat Apr 09, 2016 6:00 pm

Re: Question about RMDs from inherited IRA

Post by Mlm » Fri Jun 07, 2019 10:35 pm

megabad wrote:
Fri Jun 07, 2019 6:39 pm
CashConfessions wrote:
Fri Jun 07, 2019 4:46 pm
Can you please confirm or correct my understanding?
Sounds right to me but not a lawyer. My understanding of the regulations is that the RMD goes to the beneficiary (but is based on what it should have been for decedent).
Sounds right to me too. I had to take my mothers RMD in her year of death.

esteen
Posts: 98
Joined: Thu May 23, 2019 12:31 am

Re: Question about RMDs from inherited IRA

Post by esteen » Fri Jun 07, 2019 11:44 pm

Agree with the other posters that you do have to take an RMD based on her age in the year of her passing, then each year thereafter you can take it based on your age (are there multiple beneficiaries? If so there is a timeline to get those assets transferred into their own inherited accounts otherwise the subsequent year RMDs will be based off the eldest beneficiaries age and not necessarily your own, I believe).

But by your post it seems you already knew the same-year RMD distribution calculation, and your question is whether the RMD have to go to you and be taxed as your income, or go to the estate (and then go... where? to you?). I do not know the answer to that! Sorry I'm not of more help :(

-ES

billfromct
Posts: 1000
Joined: Tue Dec 03, 2013 9:05 am

Re: Question about RMDs from inherited IRA

Post by billfromct » Sat Jun 08, 2019 12:05 am

This issue is the reason I advocate taking the traditional IRA RMD early in January to get it out of the way so my beneficiaries won't have to worry about it.

In my case, it's my kids who have to get it done & they are not the most administratively adept when it comes to complicated financial issues.

Others advocate waiting until December of the year to take their RMD in order to earn a few extra % on their IRA investment. If the person passes before the RMD is taken, it appears the beneficiary has to get it done.

I don't want my kids to go through this same issue and get a 50% IRS penalty letter because my RMD was not taken a couple years previous when I passed away. It's my understanding that the IRS waives the 50% traditional IRA penalty for not taking the RMD if you have a valid excuse why the RMD was not taken.

Maybe Vanguard (where my traditional IRA sits) will let the beneficiaries know that the RMD was never taken & will work out the details. I don't know & have not checked this out with Vanguard.

bill

User avatar
celia
Posts: 9756
Joined: Sun Mar 09, 2008 6:32 am
Location: SoCal

Re: Question about RMDs from inherited IRA

Post by celia » Sat Jun 08, 2019 1:36 am

Think ahead to next January when the tax forms are issued. To have the estate be responsible for the taxes, they would need to take this year’s RMD. One problem is that if there are multiple beneficiaries, some of them may be in a low bracket, and it may make more sense for the beneficiaries to take the RMD and pay the taxes. Note that if there are multiple beneficiaries, another beneficiary (or more) could take out part of the RMD and you take out nothing (for this year). The IRS doesn’t care who takes the RMD as long as the total required amount is taken.

Another path, if you are over 70.5, is to give the RMD to charity using a QCD.
Flora wrote:
Fri Jun 07, 2019 6:21 pm
Consider disclaiming the inherited IRA so that it goes to your child/children if you gave any.
This only works if they were included as beneficiaries or per stirpes was specified on the beneficiary declaration. Otherwise, whatever you disclaim goes to the other beneficiaries.
A dollar in Roth is worth more than a dollar in a taxable account. A dollar in taxable is worth more than a dollar in a tax-deferred account.

rossington
Posts: 250
Joined: Fri Jun 07, 2019 2:00 am
Location: Florida

Re: Question about RMDs from inherited IRA

Post by rossington » Sat Jun 08, 2019 2:19 am

I experienced the same situation when my Mom passed away. Your Grandmother's full RMD must be distributed by 12/31 of this year but that will be reflected on HER tax return for 2019. Next year the RMD will be reduced based on your age and will be less of a tax implication for you but it will be your income. The RMD's will be required every year for you. Invest within the account and do your best to keep it growing!!
"Success is going from failure to failure without loss of enthusiasm." Winston Churchill.

Gill
Posts: 5726
Joined: Sun Mar 04, 2007 8:38 pm
Location: Florida

Re: Question about RMDs from inherited IRA

Post by Gill » Sat Jun 08, 2019 6:08 am

rossington wrote:
Sat Jun 08, 2019 2:19 am
I experienced the same situation when my Mom passed away. Your Grandmother's full RMD must be distributed by 12/31 of this year but that will be reflected on HER tax return for 2019. Next year the RMD will be reduced based on your age and will be less of a tax implication for you but it will be your income. The RMD's will be required every year for you. Invest within the account and do your best to keep it growing!!
No, it will not be on the decedent’s return but on that of the beneficiary.
Gill
Cost basis is redundant. One has a basis in an investment | One advises and gives advice | One should follow the principle of investing one's principal

Topic Author
CashConfessions
Posts: 26
Joined: Sun Apr 02, 2017 10:24 pm

Re: Question about RMDs from inherited IRA

Post by CashConfessions » Sat Jun 08, 2019 6:37 am

Thanks, all, for the replies. Just a couple of additional details for the curious:

(1) I'm actually the sole beneficiary, which makes things easy
(2) No kids yet, so not able to disclaim to them
(3) After reading 590-B, I know why I asked here rather than read it in the first place
(4) Definitely planning on maintaining the investment / reinvesting the RMDs going forward

The one item that a couple of people mentioned that I can't seem to validate is that the RMD for this year would be attributable to my grandmother's 2019 tax return while going forward, RMDs would be attributable to me. If anyone has some documentation of that, it would be much appreciated.

Thanks again for all of the assistance.

Gill
Posts: 5726
Joined: Sun Mar 04, 2007 8:38 pm
Location: Florida

Re: Question about RMDs from inherited IRA

Post by Gill » Sat Jun 08, 2019 7:34 am

CashConfessions wrote:
Sat Jun 08, 2019 6:37 am

The one item that a couple of people mentioned that I can't seem to validate is that the RMD for this year would be attributable to my grandmother's 2019 tax return while going forward, RMDs would be attributable to me. If anyone has some documentation of that, it would be much appreciated.
Your grandmother was a cash basis taxpayer. Any income received in 2019 during her lifetime is reported on her final 1040. Income received after date of death has not been received by her and is instead taxed to the beneficiary who received it. The information to the contrary given to you earlier in a post above is incorrect. I wish it were not the case.
Gill
Cost basis is redundant. One has a basis in an investment | One advises and gives advice | One should follow the principle of investing one's principal

Chip
Posts: 2584
Joined: Wed Feb 21, 2007 4:57 am

Re: Question about RMDs from inherited IRA

Post by Chip » Sat Jun 08, 2019 8:19 am

Gill wrote:
Sat Jun 08, 2019 7:34 am
Any income received in 2019 during her lifetime is reported on her final 1040. Income received after date of death has not been received by her and is instead taxed to the beneficiary who received it.
Gill,

Is the basic idea here that the IRA was owned by the decedent up until her death, and at that moment became the property of the beneficiary? So because of that there is no intermediate period where income accrues to the estate?

Gill
Posts: 5726
Joined: Sun Mar 04, 2007 8:38 pm
Location: Florida

Re: Question about RMDs from inherited IRA

Post by Gill » Sat Jun 08, 2019 8:28 am

Chip wrote:
Sat Jun 08, 2019 8:19 am
Gill wrote:
Sat Jun 08, 2019 7:34 am
Any income received in 2019 during her lifetime is reported on her final 1040. Income received after date of death has not been received by her and is instead taxed to the beneficiary who received it.
Gill,

Is the basic idea here that the IRA was owned by the decedent up until her death, and at that moment became the property of the beneficiary? So because of that there is no intermediate period where income accrues to the estate?
Yes, that is correct. The IRA is not an estate asset and is deemed to pass immediately to the beneficiary.
Gill
Cost basis is redundant. One has a basis in an investment | One advises and gives advice | One should follow the principle of investing one's principal

Topic Author
CashConfessions
Posts: 26
Joined: Sun Apr 02, 2017 10:24 pm

Re: Question about RMDs from inherited IRA

Post by CashConfessions » Sat Jun 08, 2019 8:33 am

Thank you, Gill, and all. That certainly makes sense to me.

jebmke
Posts: 9782
Joined: Thu Apr 05, 2007 2:44 pm

Re: Question about RMDs from inherited IRA

Post by jebmke » Sat Jun 08, 2019 8:34 am

What if there is no beneficiary stated on the IRA?
When you discover that you are riding a dead horse, the best strategy is to dismount.

mslaw
Posts: 81
Joined: Wed Jun 15, 2011 5:35 pm

Re: Question about RMDs from inherited IRA

Post by mslaw » Sat Jun 08, 2019 8:50 am

The taxation on death of IRA’s RMDs, and the timing of withdrawals information, is quite enlightening. I had failed to consider that while I may have financially sophisticated beneficiaries, the age of my contingent beneficiaries precludes the necessary “paperwork” skills.
Last edited by mslaw on Mon Jun 10, 2019 9:28 am, edited 1 time in total.

Gill
Posts: 5726
Joined: Sun Mar 04, 2007 8:38 pm
Location: Florida

Re: Question about RMDs from inherited IRA

Post by Gill » Sat Jun 08, 2019 9:10 am

jebmke wrote:
Sat Jun 08, 2019 8:34 am
What if there is no beneficiary stated on the IRA?
The default beneficiary is normally the estate of the IRA owner in which case the IRA would pass to the estate. In other words, if you haven't named a beneficiary the contract with the custodian has provided one for you.
Gill
Cost basis is redundant. One has a basis in an investment | One advises and gives advice | One should follow the principle of investing one's principal

User avatar
Flobes
Posts: 1134
Joined: Tue Feb 16, 2010 12:40 am

Re: Question about RMDs from inherited IRA

Post by Flobes » Sat Jun 08, 2019 9:24 am

Gill wrote:
Sat Jun 08, 2019 9:10 am
jebmke wrote:
Sat Jun 08, 2019 8:34 am
What if there is no beneficiary stated on the IRA?
The default beneficiary is normally the estate of the IRA owner in which case the IRA would pass to the estate. In other words, if you haven't named a beneficiary the contract with the custodian has provided one for you.
Gill
If the estate is the IRA beneficiary, is the estate responsible for current year RMD?

Gill
Posts: 5726
Joined: Sun Mar 04, 2007 8:38 pm
Location: Florida

Re: Question about RMDs from inherited IRA

Post by Gill » Sat Jun 08, 2019 9:45 am

Flobes wrote:
Sat Jun 08, 2019 9:24 am
Gill wrote:
Sat Jun 08, 2019 9:10 am
jebmke wrote:
Sat Jun 08, 2019 8:34 am
What if there is no beneficiary stated on the IRA?
The default beneficiary is normally the estate of the IRA owner in which case the IRA would pass to the estate. In other words, if you haven't named a beneficiary the contract with the custodian has provided one for you.
Gill
If the estate is the IRA beneficiary, is the estate responsible for current year RMD?
Yes, if it wasn’t taken by the decedent
Gill
Cost basis is redundant. One has a basis in an investment | One advises and gives advice | One should follow the principle of investing one's principal

rossington
Posts: 250
Joined: Fri Jun 07, 2019 2:00 am
Location: Florida

Re: Question about RMDs from inherited IRA

Post by rossington » Sat Jun 08, 2019 12:09 pm

Gill wrote:
Sat Jun 08, 2019 6:08 am
rossington wrote:
Sat Jun 08, 2019 2:19 am
I experienced the same situation when my Mom passed away. Your Grandmother's full RMD must be distributed by 12/31 of this year but that will be reflected on HER tax return for 2019. Next year the RMD will be reduced based on your age and will be less of a tax implication for you but it will be your income. The RMD's will be required every year for you. Invest within the account and do your best to keep it growing!!
No, it will not be on the decedent’s return but on that of the beneficiary.
Gill
Thanks for the correction Gill! I was thinking of any distributions that were received prior to her passing and worded my post incorrectly.
"Success is going from failure to failure without loss of enthusiasm." Winston Churchill.

scrabbler1
Posts: 2425
Joined: Fri Nov 20, 2009 2:39 pm

Re: Question about RMDs from inherited IRA

Post by scrabbler1 » Sat Jun 08, 2019 1:07 pm

jebmke wrote:
Fri Jun 07, 2019 4:51 pm
I'm not an expert but when my FIL passed away, I think the executor had to arrange for the RMD to be made to the estate to satisfy HIS RMD for the tax year of his death before the IRA was split out and transferred to the beneficiaries. Once the transfer was made, the beneficiaries had to do their own RMD the next year (and subsequent years thereafter).

Edit: I went back and found that this was the case. For the year he died, there is no RMD on our tax return. For the year after he died, we reported my spouse's RMD -- an "inherited IRA." I'm assuming that his RMD appeared on the 1065 filed for the estate but I don't have a soft copy of that.
My friend's remaining parent (his mom) passed away in August of 2012. His mom hadn't yet taken her RMD from her IRA. Her estate's executor had to take the RMD first, before splitting up her IRA between my friend and his sister. The taxes on that RMD were handled by her tax accountant in the 2012 estate tax return, while the cash from the RMD became part of the overall cash to be split up when the estate was passed down to my friend and his sister.

With my help, my friend has taken RMDs every year from his share of the inherited IRA, now in his own name.

Alan S.
Posts: 8659
Joined: Mon May 16, 2011 6:07 pm
Location: Prescott, AZ

Re: Question about RMDs from inherited IRA

Post by Alan S. » Sat Jun 08, 2019 1:25 pm

IRA owner passes before completing the year of death RMD. The responsibility to complete that RMD falls to the beneficiaries of the IRA.

1) Individual or charitable beneficiaries - the year of death RMD can be completed in any combination to these beneficiaries. The beneficiaries will get the 1099R and report the income (tax free to charities).

2) Estate beneficiary - this is the only time the distribution should be made to the estate. However, is it usually more efficient if there is a will to have the executor assign the estate IRA to the will beneficiaries before taking any distributions. The year of death RMD can then be distributed directly from the individual inherited IRAs to these beneficiaries. This avoids running the distribution through the estate and passing then through to the beneficiaries on a K1.

3) For late year deaths or late discovery of the IRA, it is normal for the year of death RMD not to be completed that year. In that case, the responsible beneficiaries should file a 5329 to request waiver of the penalty. If there are multiple beneficiaries, it is acceptable for the 5329 to reflect only each beneficiary's share of the year of death RMD. Any remaining IRA basis from decedent is pro rated to each beneficiary.

Post Reply