IRA, Inherited IRA: Decedent RMD with Multiple Beneficiaries with One Uncooperative

[yetanotherbrian]

Decedent (age 80)  has  not met their IRA RMD (age 80) and dies in 2019. The decedent's IRA has two beneficiaries with the interest divided evenly (50/50).   
One beneficiary establishes inherited IRA in 2019 and distributes 1/2 of the amount of the decedents RMD.
The other decedent is uncooperative and does not establish an inherited IRA. 
Therefore 1/2 of the decedent's RMD has not been met. 
There are three tax returns involved.  The last tax return of the decedent.  The beneficiary with the inherited IRA.  The uncooperative beneficiary. 
Who pays the penalty, the decedent's tax return, the beneficiary with inherited IRA, or the uncooperative beneficiary.

[dmertz · Accepted solution]

Upon the death of the decedent the beneficiaries became responsible for completing the decedent's 2019 RMD, so the decedent is not the one subject to the penalty.  The IRS has not provided specific guidance on which beneficiary will be subject to the excess accumulation penalty if the full RMD for 2019 is not completed, but it's commonly believed that as long as a particular beneficiary receives a distribution in proportion to their respective share (50% of the RMD in this case) that that beneficiary will not be subject to the excess accumulation penalty.  This means that it would be the uncooperative beneficiary who needs to file Form 5329 Part IX and pay the excess accumulation penalty on their 50% share of the RMD.

Section 1.401(a)(9)-5 Q&A-4 just says that the RMD must be completed by "a" beneficiary, so if the cooperative beneficiary wants to be absolutely certain that they cannot become responsible for any the penalty that beneficiary can take a distribution of the remainder of the RMD.

[kiml1163]

I have the similar situation in 2021. I called Turbo Tax Live and spoke to a tax expert who said the penalty and Form 5329 should go on the decedent's tax return for the missed RMD year (2021).  Only the distribution will go on the beneficiary's return in 2022. Which is correct treatment?

[AmyC]

@dmertz is correct. If the RMD was not taken during 2021, it is the responsibility of the beneficiaries- or the estate to have taken it. The estate can claim the RMD and have it as part of the estate return. If there is no estate return for the decedent, then it goes to the beneficiaries.

If no estate, then the beneficiaries 2022 return will have two distributions, one for 2021 at the decedent's RMD level and one for 2022 based on inheritance laws - which have changed. 

If you want the complete picture, see Publication 590-B, Distributions from Individual Retirement Arrangements (IRAs) beginning on page 8 with page 13 showing multiple beneficiaries. Not sure where in the range you are from estate to multiples beneficiaries. Since there is a section with beneficiaries and Sep 30 of the following year, you may have something in that section as well that would further your position.

The 5329- I would add it to the decedent's return asking for a waiver of the penalty and explaining the beneficiary did not realize the RMD was not taken and has taken steps to correct the issue. Chances are high the IRS will accept the waiver as long as the distributions are made and the form is clear. Here are the instructions to make sure you get it right.

@kiml1163

[kiml1163]

Hi - so even though the beneficiary is responsible to take the missed RMD,  the 5329 penalty should "go" with the decedent's tax return? That is what is confusing....who gets the penalty.  Thanks! Like I said i've seen two different answers so i'm trying to get some references.

[dmertz]

1.401(a)(9)-5 A-4(a) states, "... a minimum required distribution, determined as if the employee had lived throughout that year, is required for the year of the employee's death and that amount must be distributed to a beneficiary to the extent it has not already been distributed to the employee."  Since the distribution must be made to the beneficiary, the beneficiary becomes the payee.  CFR 54.4974-1 (regarding IRAs) and CFR 54.4974-2 (regarding employer plans) both state that the penalty is imposed on the payee, so the Form 5329 must be included with the beneficiary's tax return.  Also, only the payee can request a waiver of the penalty if the RMD is subsequently made.  Since the beneficiary is the one who receives the payment and is therefore the payee, again the Form 5329 requesting a waiver of the excess-accumulation penalty must be included with the beneficiary's tax return.