deceased did not take an RMD for this year - IRA is already dispersed

[smishke]

hi - The situation is that the deceased did not take an RMD for this year. All of the beneficiaries (20 people) have their portion in their inherited IRA's at this point.

- How should the RMD be taken?
- Who's responsible for making sure the RMD is done?

- what are the ramifications tax-wise to the deceased taxes if it's not done?
- If one person cashes in their inherited IRA and it's enough to cover the full RMD, how can this be documented for tax purposes?

Sorry if I'm making this too complicated! thx
 

[macuser_22]

You say "this year" - do you mean the IRA owner died in 2019 and the IRA was also distributed in 2019?

If both in 2019 and the IRA has been totally distributed then not only has the RMD been taken it has been exceeded.

Did the IRA itself have 20 named beneficiaries or was the estate the benificuary and the 20 were beneficiaries of the estate and the estate made the distribution.    Did (will) each benificuary receive a 1099-R in their own name for their part of the distribution?

[dmertz]

By operation of law, the beneficiaries become responsible for any portion the year-of death RMD of the decedent that the decedent had not already satisfied.  Based on CFR 1.401(a)(9)-5 Q&A-4 saying "that amount must be distributed to a beneficiary" [emphasis added], the year-of death RMD can be taken by the beneficiaries in any combination.  For example, if one beneficiary cashed out an amount sufficient to complete the decedent's year-of-death RMD, the other beneficiaries need not take any distribution for the year of death.  The distribution taken by each beneficiary is taxable on that beneficiary's tax return.

If the beneficiaries cannot agree on a combination that completes the year-of-death RMD and some portion of the RMD goes uncompleted, the IRS is likely to treat the responsibility for the total amount required to be taken by the beneficiaries as being in proportion to each beneficiary's share, but there is no specific guidance on this.  You can probably argue that any amount taken by a particular beneficiary above their proportionate share proportionally satisfies the proportionate shares of other beneficiaries, but again there is no specific guidance on this.  Say there are four equal beneficiaries and $12,000 of the year-of-death RMD remained unsatisfied by the decedent.  I think that if one beneficiary received a distribution of $6,000, the other three beneficiaries would be responsible for taking $2,000 each unless one of the remaining 3 wanted to take more.   However, if three of the beneficiaries took only $3,000 each and the other beneficiary took nothing, the beneficiary that failed to take a $3,000 distribution would be the one responsible for the RMD shortfall.

There is no explicit accounting of RMDs on tax returns, just the reporting of the distribution the same as if it was not an RMD.  I would retain any records that substantiate that you took whatever portion you were responsible for taking, including information documenting the amounts taken by other beneficiaries if the RMD is not satisfied proportionately. 

(Having 20 beneficiaries certainly complicates coordination of satisfying the year-of-death RMD, but I would expect that any beneficiary that receives a distribution of a proportionate share of the RMD would be safe.)

[smishke]

thx @macuser_22 ,

Yes to both - The IRA owner died in 2019 and the IRA was also distributed as "inherited IRAs" in 2019.

The IRA itself had 20 named beneficiaries. It's in process now. Not everyone has "inherited" their portion of the IRA yet, but almost complete. Nothing was specified for the trust, only descendants.

No 1099-R because it's going on now and so far I don't think anyone has taken an actual distribution.

[dmertz]

Also, the IRS relies on self-reporting of RMD shortfalls and requests for waiver of the 50% excess accumulation penalty for taking the RMD late.  The IRS is not in the habit of investigating RMD shortfalls.  The statute of limitations clock on assessing the penalty doesn't start running until the taxpayer reports the shortfall.  

[macuser_22]

Nothing about a RMD actually appears on a tax return.   The only reporting is if the RMD is not taken in 2019.

The RMD is the *minimum" distribution that must be taken in 2019.  If the entire IRA is distributed in 2019 then much more then the RMD would have been taken so the RMD requirement  would be met and the IRA no longer exists.

[Anonymous · Accepted solution]

it seems what your saying is that the original IRA was rolled into inherited IRA's and no one actually has taken the cash out as yet

distributions  year of death (assuming RMD's had already been required in prior year)  - the beneficiaries must take the owner's RMD by the end of 2019.

don't know if there was a spouse, but it wouldn't matter because they are not the the sole beneficiary of the account.  In effect they would be treated as a nonspouse beneficiary

rules for nonspouse beneficiaries:

can't treat inherited IRA as there own - ie can't roll it into any other IRA's they may have

can't make contributions to it

rmd calculation (again assuming decndent had already started RMD's)

the longer of beneficiary's life expectancy or deceased owners remaining life expectancy starting in the year following death of the owner using the single life table see IRS PUB 590-B

RMD's must be computed separately for each inherited IRA account

but the full RMD for  inherited IRA's can be taken from one or more of these accounts but not from other IRA's 

RMD's for non-inherited IRA's can only be taken from these type of accounts but again if there are multiple accounts the RMD for these accounts can be taken fro one or more