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Year of Death Required Minimum Distributions

Required minimum distributions (RMDs) start at age 70 ½ for all traditional IRA owners, including those who have SEP and SIMPLE IRAs set up through their employers - even if they are still working for those employers at the time.

In only the first year you are required to take distributions, you can defer the distribution until April 1 of the following year. This is your required beginning date (RBD).

If you die before your RBD, then there is no required distribution for your year of death - even if you already took part of the distribution before you die. Your spouse or other beneficiaries are not required to take any further funds out of the IRA to satisfy your distribution in the year of death. If the beneficiaries do not need the money, then let it stay in the IRA to continue growing and compounding tax deferred until they need to begin taking their own RMDs from the inherited account (12/31 of the following year).

But, if you die after the RBD and have not taken your entire RMD for the year, then your beneficiaries must take the balance of the RMD before the end of the year. The RMD for the year of death is calculated as you had lived for the entire year.

It is important that your beneficiaries know to take this distribution. The penalty for not taking a required distribution is 50%; that is not a typo; it is 50% of the amount not taken. But wait, there’s more! The amount of the missed distribution must be taken from the account and the beneficiary must pay income tax on that amount in addition to the penalty.


By IRA Technical Consultant Beverly DeVeny and Jared Trexler
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Comment, Question, Discussion Topic on your mind? Click on the Blue Comment Link below and leave your thoughts then check back to see what other consumers and advisors think.

*Copyright 2010 Ed Slott and Company, LLC

14 comments:

You say that the beneficiary must pay taxes on a missed RMD. But what if the RMD is taken in the year of death (but after death)? Who pays the income tax - the decedent or beneficiary?

It depends on whether the money was distributed from the decedent's trust or estate to the beneficiary during the year or not. If it was, it gets carried out to the beneficiary on the estate or trust's K-1. If it was not, the estate or trust pays tax on it on its income tax return (Form 1041).

Dan Mortensen

www.mortensenlaw.com

So beneficiaries must take an RMD in the year of the death of the IRA owner if that owner hadn't previously taken the RMD. How does the tax reporting work if there are multiple beneficiaries? In my case there are 3 with shares of 50/25/25. Must each of them take the RMD prorata and report it accordingly? Can they agree to have one take it? What happens if one refuses? Are they liable for the 50% excise tax on their portion?

Thanks!

Harold,

Unofficially, IRS says that the deceased account owner's RMD should be pro-rated among the beneficiaries. The tax code says that the first money paid out of the account is the RMD. From the IRA custodian's perspective,
they usually want to split the account before any distributions are taken so that the distributions are correctly reported using the beneficiary's Social Security number.

Where does that leave you? If one beneficiary takes a distribution in the year of the account owner's death, those funds should be counted toward the account owner's RMD. If you decide to apportion the year of death RMD and one beneficiary does not take their share, then that beneficiary incurs the 50% penalty. And, if they do not report that penalty on Form 5329, IRS has ruled, and the Tax Court has upheld, that no return
has been filed, the statute of limitations does not start running, and the individual can be charged with failure to file penalties and interest in addition to the 50% penalty.

Beverly DeVeny
Sr. Writer
The Slott Report

Mom passed in 2011 and did not take any RMD this year. Plan admin is telling me that the RMD calculation is now based on the non spousal beneficiaries life expectancy. The IRA is still intact in her name. Everything I have read says her RMD calculation should be used. Thanks.

I have an IRA owner who is in RMD status that just died. She has 15 beneficiaries. My broker-dealer tells me the benes must take the RMD by April 15th, not year-end. This rule is set up because it's not practical for all the beneficial IRAs to be set up and make an RMD by year-end when someone dies just before the end of the year. Do you agree?

I have the same issue as the one above, my Dad died 11/28, and it is doubtful that we will have the accounts setup in time since some are out of state.

Wait. I am confused.

The article says in the year of death, beneficaries should take the RMDs if the decendent had yet to do so. Yet some comments indicate the estate or trust should take the RMD.

Should the estate or trust take the RMD prior to the beneficaries receiveing the account, thus showing income on K1 or 1041?
Or should the beneficaries take the distrbution and report on thier 1040? To put another way, should the IRA be transfered to Inherited IRA before or after missed RMDs are taken?

Thanks.

That last question is one I would LOVE answered....

Should the estate or trust take the RMD prior to the beneficaries receiveing the account, thus showing income on K1 or 1041?
Or should the beneficaries take the distrbution and report on thier 1040? To put another way, should the IRA be transfered to Inherited IRA before or after missed RMDs are taken?

my Mom passed in Aug 2011. She had an RMD automatically set to distribute in Oct, unknown to us. The bank stopped the RMD and did not inform us of this action.
We are now working to settle the IRA among the heirs, and then bank informed us of the missed RMD, and the penality we now all share.
Why can we get the Bank to make the RMD correction, and pay it to my moms account, send the corrected forms to the IRS, and clear us of the 50% penality,that was incurret without our knowledge?

Decedent had not yet taken RMD from a 403(b) at time of death. The trustee requires that the plan be transferred to a beneficiary 403(b) in the name of the (spouse) benenficiary before they can process the RMD, but will not be able to complete the transfer before the end of the year -- hence RMD will not be completed before year end. Should the spouse a) take an equivalent distribution from HER OWN 403(b) or b) wait until after the account is transferred to take the distribution and then request a waiver of penalty on form 5329? I can't see them declining the waiver, based on good faith effort to take the RMD before year end from a trustee who is only partially functional due to flooding of their offices by Hurricane Sandy.

My father passed away on December 12. His RMD was to be distributed Dec. 31. It was not. Money in his IRA was distributed to 2 beneficiaries into a beneficiary account. What do we need to do about the RMD on my father's taxes?

If a decedent passed away in 2013 and was set up to take the MRD and had not yet taken it, can the beneficiary take more than the MRD?

Parent died 1/1/13 and rmd was received in May 2013. Is that rmd received for 2012 or 2013. How will the rmd be determined for 2013 if the rbd had been met.

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