Inherited IRA

[Markus7]

Mother-in-law died in Oct. 2023.  Wife (age 65) is sole beneficiary of traditional IRA.  Bank provided options to address the IRA: A.  Take an RMD that has not yet been satisfied (Mother-in-law did receive RMD earlier in the year)

B.  Open an inherited IRA (leads us to believe the status of the existing IRA had not been changed), or C.  Take a full distribution and close the IRA.  We chose C.  full distribution with federal tax withholding within 30 days of date of death.

Bank's subsequent 1099-R reflects part 7 distribution code of 4 (death).  TurboTax states an RMD was required and imposes a substantial tax penalty on the distribution - roughly 1/3.  IRS rules suggest an RMD for my wife was not required until 2024.  Is TurboTax handling this situation properly?

[VolvoGirl]

You said the MIL did receive the RMD earlier.  Was it for the full RMD amount?  So why wasn't the RMD satisfied?  Did you get 1 or 2 1099R forms?

That really doesn't matter.  Since your wife took it all out then obviously  the RMD was satisfied.  Say YES to the questions about the RMD (on both 1099R if you get 2).  @dmertz   

[Markus7]

Thanks for the quick response.  The MIL RMD was indeed for the full amount and was done before her death.  My reading of this forum and IRS info suggests that an RMD is required for my wife as the designated beneficiary, however the timing of such a RMD is in question.  While it can be done after the MIL death and before the end of the same year of death, it is required no later than the end of the year following the MIL death.  Additionally, the computation of a new RMD appears to be based upon my wife's age and whether that computed amount is greater that a RMD based upon her deceased mother's age, correct?

[VolvoGirl]

But none of that should matter since she took a full distribution and didn't keep it as an inherited IRA.   What did she do with it?  She may owe more tax on it if the withholding wasn't enough to cover the extra tax on all your income.  And it could make more of any SS you got taxable.   

[dmertz]

"TurboTax states an RMD was required"

TurboTax might say that there was an owner RMD required for 2023, but that's just a reminder and has no effect on the tax return.  The user, not TurboTax, indicates whether or not all of the RMD was satisfied.  After clicking the Continue button on the page that lists the Form 1099-R that you have entered, when asked, indicate that all of the RMD was taken.

[Markus7]

Yes, TurboTax says that either the MIL or Julie is required to take an RMD in 2023.  As I stated previously, the RMD was indeed taken earlier in the year prior to the MIL death.  TurboTax is referencing the distribution of the IRA to my wife post-death of MIL.  I don't believe my wife is required to take an RMD (in addition to the one the MIL already received) for this distribution.

[dmertz]

TurboTax's statement is simply a reminder in case the distribution was not made.  The RMD distribution was made, so the reminder can be ignored.

[Markus7]

Additionally, TurboTax reads:  "Tell us more about this Retirement Plan Distribution.

(my wife's name) needed to take a required minimum amount of money from any qualified employer plans or traditional IRAs, or be subject to a 25% tax.  This is calla required minimum distribution (RMD."

I believe this is incorrect in this situation as my wife is 65 and a RMD is not required until the end of the first year following the year of death for an inherited IRA.

It goes on to state that if the full RMD was not taken, "we'll help you request a waiver of the tax."  Where do get this assistance?

[dmertz · Accepted solution]

Click the Continue button on the page that lists the Forms 1099-R that you have entered and indicate that you were not required to take an RMD.  If that doesn't work and there is  Form 5329 Part IX present in your tax return, delete the Form 5329 to remove any remnants of a mistaken entry indicating the not all of the RMD was taken.  Since there was no missed RMD, there should be no Form 5329 Part IX present in your tax return and no need to request a waiver.

Also, with the inherited IRA having been fully distributed in 2023, there is no beneficiary RMD for 2024.