Massachusetts.
I am the sole heir to my father's estate. He has a Simple IRA account with T Rowe Price that I need to fill out a distribution form and W4-R for. Unfortunately, my father never named a beneficiary on the account, meaning his estate inherits it by default. He was 77, so taking RMDs, but he had not taken his RMD for 2024 when he passed.
1. I will have to distribute that before the end of this year or pay the penalty, correct?
2. If I understand everything I've read on this, I can distribute the account over his remains life expectancy, so 12.3 years. Is this correct?
3. How much should I withhold on the W4-R? Should it be taxed at my income rate (12%), since I am the sole beneficiary of the estate? Or at the much higher estate tax rate?
I am currently waiting for the IRS to send me the EIN for his estate.
I appreciate any help with this, I don't want to do this wrong! Thank you.
1. Under the final regulations issued earlier this year, the deadline to complete his 2024 RMD is December 31, 2025. You'll want to consider whether it's better for you to incur this income in 2024 or instead in 2025.
2. Because the beneficiary is his estate (not an individual), the RMDs for 2025 and beyond are based on the factor for the age would have achieved in 2024 had he lived to the end of the year, reduced by one each subsequent year. If he would not have reached age 78 by the end of 2024, the factor for 2025 is 13.3 - 1 = 12.3. If he would have reached age 78 by the end of 2024, the factor for 2025 is 12.8 - 1 = 11.8.
3. If a distribution is paid to the estate, presumably the estate will pass the income through to you on a Schedule K-1 for taxation on your individual tax return. You could also have the inherited IRA transferred out of the estate to an inherited IRA for your benefit and have distributions paid directly to you, but that won't change the RMD calculation. Either way, you'll want to figure tax withholding or estimated tax payments such that you do not end up with an underpayment penalty on your individual taxes.
1. Under the final regulations issued earlier this year, the deadline to complete his 2024 RMD is December 31, 2025. You'll want to consider whether it's better for you to incur this income in 2024 or instead in 2025.
2. Because the beneficiary is his estate (not an individual), the RMDs for 2025 and beyond are based on the factor for the age would have achieved in 2024 had he lived to the end of the year, reduced by one each subsequent year. If he would not have reached age 78 by the end of 2024, the factor for 2025 is 13.3 - 1 = 12.3. If he would have reached age 78 by the end of 2024, the factor for 2025 is 12.8 - 1 = 11.8.
3. If a distribution is paid to the estate, presumably the estate will pass the income through to you on a Schedule K-1 for taxation on your individual tax return. You could also have the inherited IRA transferred out of the estate to an inherited IRA for your benefit and have distributions paid directly to you, but that won't change the RMD calculation. Either way, you'll want to figure tax withholding or estimated tax payments such that you do not end up with an underpayment penalty on your individual taxes.