Entering Decadent and Beneficiary info on RMD on traditional IRA

[maglib]

Scenario:

Aunt Deceased in 4/2023 , she was 74 and had been taking annual distributions her RMD for 2023 is say $20, 000 for the year but, she only took $7k as she passed away.  When doing her decadent return in Turbotax desktop Do I still enter it in full? See attached screen as 20k and 7k entries?  another beneficiary did take the full RMD (see part 2) so does that have any impact on how to enter in TT?

Then PART 2 of question:  The beneficiaries of the IRA's were 3 people who each got say $50k.  1 person cashed all of theirs OUT which hopefully satisfied the full distribution to be taken, the other 2 took no distributions.  We received a Form 5498 showing box 5 $50k, box 7 IRA*, box 11 not checked as inherited.  Is there any reporting by the beneficiaries of the inherited IRA?

How does IRS know that the RMD was completed by the 1 beneficiary for all?

Hope this makes sense.

[dmertz]

Upon the death of the Aunt, the obligation to complete the remaining $13,000 of RMD became the obligation of the beneficiaries and any distributions taken by the beneficiaries to complete the RMD are reportable on the beneficiaries' tax returns.   Because one beneficiary took a distribution of more than $13,000, the year-of-death RMD was satisfied.  Explanation is required only if the IRS asks for it, which they never seem to do under these circumstances.

Enter on Aunt's tax return only the distributions actually received by Aunt, the $7,000 reported on the Aunt's code-7 2023 Form 1099-R.  When asked, indicate that Aunt received all of Aunt's RMD, otherwise TurboTax will inappropriately generate Form 5329 Part IX assessing an excess-accumulation penalty.

The IRA custodian is not required to report anything in box 11 of Form 5498 for inherited IRAs, so they usually leave it blank.

[maglib]

@dmertz  thank you for your response.

I did it originally saying she didn't take her full RMD and TT did create a 5329-T but, it allowed me to give an explanation of why it shouldn't be taxed on a waiver of tax smart worksheet.  I just wrote that she passed away and that 1 of the beneficiaries satisfied the RMD in full and gave his SSN.

Do you think I'm better to complete the form or not?

She has no tax liability.

I'm honestly only doing a return for her because I want to show I reported Treasury Interest to her so it won't be taxable to the estate.

Thanks again.

[dmertz · Accepted solution]

The unnecessary Form 5329 requesting a waiver of the excess accumulation penalty should not be filed.  Because responsibility to complete the year-of-death RMD transferred to the beneficiaries immediately upon Aunt's death and because the IRS proposed regulations provide an automatic waiver of the excess accumulation penalty as long as the beneficiaries complete the year-of-death RMD by the due date of the 2023 tax return, including extensions, there is no requirement to file Form 5329 requesting a waiver of the penalty.

[maglib]

@dmertz Thank you so much for the reply so every person who took an IRA distribution would claim RMD was made in full then and no form then.  What does the IRS received other then the 1099-R ?  How does the IRS know what RMD is supposed to be taken other than what an OP puts in their return?

[dmertz · Accepted solution]

The IRS would likely have to do an audit of all involved to determine that the year-of-death RMD was not satisfied and which beneficiaries would be treated as not having met the responsibility.  The IRS has the year end value reported on the decedent's 2022 Form 5498 so can calculate the required RMD and then can review 2023 Forms 1099-R reporting distributions to the decedent and to the beneficiaries to determine if the RMD has been satisfied.  If the total RMD was not satisfied, I would imagine that the IRS would treat the shortfall as being the responsibility of those who took less than their proportionate shares.  That's why when taking less than the proportionate share it's important to coordinate with the other beneficiaries to make sure that there is no overall RMD shortfall.