My brother & I inherited my mother's IRA in 2017. Her date of death was 11/15/17. I noticed that she did not take her RMD in 2017. What should we do?

[dmertz · Accepted solution]

Assuming that your mother reached age 70½ in some year prior to 2017, upon your mother's death, the responsibility to complete her year-of-death RMD became the responsibility of the beneficiaries.  IRA custodians generally require that the IRA be transferred to inherited IRAs for the beneficiaries in proportion to each beneficiary's share.  Once the inherited IRAs are established, your mother's year of death RMD can be satisfied from the beneficiary's inherited IRAs in any proportion.  Each beneficiary taking part in completing the year-of-death RMD should complete Form 5329 requesting a waiver of the excess accumulation penalty as a result of completing the year-of-death RMD late.  The IRS invariably grants the waiver when requested under these circumstances.  See the instructions on the last page of the Instructions for Form 5329.

If 2017 was the year that your mother reached age 70½, she died before reaching her required beginning date for RMDs and there is no RMD to complete.

Keep in mind that your mother's RMDs from her traditional IRAs are permitted to be aggregated and the total taken from any one of her IRAs, so if she had enough distributed from another IRA to satisfy the aggregate of her traditional IRA RMDs, her RMDs have already been satisfied.  If any of the accounts were 401(k), 403(b), 457(b) or federal TSP accounts, RMDs for those accounts are required to be distributed to beneficiaries before any remainder is rolled over to inherited IRAs for beneficiaries.

[Mark5]

Thank you. Am I correct that we would file this along with a payment for the penalty & if the IRS grants a waiver, they would send a refund? Is this a separate filling or is it included in our turbotax return? would this income then be part of our 2018 tax able income?

[dmertz]

The instructions for Form 5329 indicate that you are not to send payment for the penalty on the amount on which you are requesting the waiver.  The IRS will bill for the penalty in the unlikely event that they do not grant the waiver.  The only case where I can imagine the IRS denying the waiver would be for an explanation that indicates that the delay in completing the RMD was intentional.

[KurtS]

Contact the entity that is handling your mothers IRA. Explain the situation. They will ask you for some verification and you will have to fill out some forms. This will take awhile. Once the entity established who the funds legally belong to- they will disburse them. Keep all of this paperwork, including photocopies of the check, copies of any emails, etc. You will need to address this when you file her 2017 return. Because she died so late in the year, your best option is to do two things simultaneously-deal with the entity that handles the IRA and contact the IRS. Hopefully you can get the funds at least "assigned" before you have to file your mothers return so that the disbursement can be noted.

[Mark5]

She had 3 accounts. 1 was transferred to us last year as inherits IRA’s. The other 2 are in her name. Her accountant filed her return & said she didn’t need to do distribution .

[vikingsfan6281]

Dmertz, Quick question, did you say that if multiple siblings inherit an IRA from a parent, one of the siblings could withdraw enough money to satisfy the RMD for all of the siblings?  I am working with a client right now that is in that situation.  3  siblings inherited a Traditional IRA from a parent.  Thanks for any reply.

Bill

[dmertz]

For the decedent's year-of death RMD, yes, the year-of-death RMD can be satisfied by the beneficiaries in any combination since it's not a beneficiary RMD.  Section 1.401(a)(9)-5 Q&A-4 says that "that amount must be distributed to a beneficiary" [emphasis added].  So if one beneficiary took a distribution that was sufficient to satisfy the decedent's 2017 RMD, no other beneficiary needs to satisfy any portion of the decedent's 2017 RMD.

Beyond that, hopefully the inherited IRA was split into separate inherited IRAs for the beneficiaries by December 31, 2018, otherwise the beneficiary RMDs will all be based on the age of the oldest beneficiary rather than on each beneficiary's separate age. 

[vikingsfan6281]

Dmertz,  Thanks for the reply.  One more question, does the RMD need to be taken before the T. IRA is split into the 3 inherited IRAs or can it be split, then one sibling take the RMD for all 3?  I had read that the RMD would go to the children's reportable income and not the original owners estate so how would that work?  Sorry for the extra questions.  Thanks.

Bill

[vikingsfan6281]

Also,  I am not sure if it makes a difference, but this event occurred in 2019.  Thanks.

[dmertz]

My reply was with respect to the date mentioned in the original poster's question.  vikingsfan6218, since your case involves the decedent dying in 2019, the deadline for splitting the accounts to allow each designated beneficiary to use their own age for determining RMDs is December 31, 2020.

Because distributions made after the death of the IRA participant are taxable to the beneficiary receiving the distribution, custodians generally want you to establish the separate inherited IRAs before any beneficiary takes a distribution.  This makes the preparation of a Form 1099-R by the custodian much more straightforward since the separate inherited IRA account will have all of the necessary information needed by the custodian to provide the beneficiary with the form.  The custodian will also generally require splitting the IRA before making any distributions to beneficiaries to avoid any complications in determining the beneficiaries' respective shares.  Splitting the IRA has no effect on the year-of-death RMD being able to be satisfied by the beneficiaries in any combination.

Making sure that the year-of-death RMD is fully satisfied will require coordination among the beneficiaries.  If coordination is not possible to ensure that the year-of-death RMD has been satisfied (because, say, one of the beneficiaries is uncooperative), it would probably be wise for an individual beneficiary take a distribution of the year-of-death RMD in proportion to their respective share of the inherited IRA.

If the 2019 RMD is not completed before the end of 2019, the beneficiaries will need to file 2019 Form 5329 requesting waiver of the 50% excess accumulation penalty and to explain how the 2019 RMD was eventually satisfied.  With two months remaining before the end of 2019, it should be possible to complete the distribution before the end or 2019 and avoid any need to file Form 5329.

[vikingsfan6281]

Unbelievable informative information dmertz!  You are a wealth of knowledge and I thank you for taking some time out of your day to educate me.  I talked with the IRS yesterday (not sure who I was talking to actually knew all of the law), and she told me that if each individual inheriting the IRA did not take a RMD, there would be a penalty for excess contributions to an IRA.  What I think you are saying is that all 3 adult children can open inherited IRAs and as long as the year of death RMD is taken by any combination of the kids, the 3 them of them would then be good to go and there would not be an issue of excess contributions because the correct amount of RMD was taken in 2019.  Did I summarize correctly?  Thanks again for any replies.

Bill

[dmertz]

Yes, you summarized correctly.  You are talking about an excess accumulation penalty, not an excess contribution penalty, and apparently whoever you talked to at the IRS was referring to beneficiary RMDs which begin the year after the year of death and which each beneficiary must satisfy separately, not to completion of the decedent's year-of-death RMD.

[vikingsfan6281]

Thank goodness!!  You are a lifesaver.  Thanks again for your help.  

[dmertz]

Attorney Natalie Choate, a recognized authority on the subject of IRAs and qualified retirement plans, also makes it clear in paragraph 1.5.04(F) of her book "Life and Death Planning for Retirement Benefits (6th Edition)" that ANY beneficiary can satisfy the year-of death RMD, based on the same interpretation of section 1.401(a)(9)-5 Q&A-4.