My father recently passed away and we are working through all of his financials. Unfortunately, we have discovered that he did not file his taxes the last few years. He has a couple of IRAs that it looks like he did not take the RMDs either. We are trying to figure out how to handle the RMDs and filing past year taxes.
I have found a couple of articles on the internet that have said stated if we fully liquidate the IRAs within 5 years of his death that we do not have to be concerned with missed prior RMDs. Basically, I assume this is because the full liquidation of the account will get the IRS their money.
Can anyone point me to an actual IRS publication, or part of tax law, that states this? I have looked at publication 590b but did not really see anything that stood out related to this.
I'm sorry for your loss.
On what date/year did your father reach retirement age, thus being required to take an RMD? Also, who is the designated beneficiary of the IRA? His spouse? Children? Grandchildren? Someone else?
Now your father may not have filed a tax return. But that doesn't mean he didn't take the RMDs. Do you have access to the account yet, so that you can look at the transaction history?
Also, and this is very important, does the state which is the tax home of your father, tax personal income? If so, then that state may also tax the RMDs, but it depends. So get the facts on that. I can't provide the facts, because I don't know what state was your dad's tax home.
Are you the legally recognized and designated/appointed administrator of your dad's estate? The only way you can answer yes to that, is if it's been run through probate (with or without a will) and the probate court has recognized or appointed you as the administrator of his estate.
Have you at least started the process of transferring all of your dad's assets to an estate, and if so do you have an EIN for the estate yet?
My father was well into the time that he was required to take RMDs. The beneficiary was my mother, who pre-deceased my father, so the IRAs go to the estate. Based on documentation we have found it does not look like he was taking the RMDs. We are in the process of getting access to all of his accounts and transferring assets to the estate. And yes, the state, does tax personal income.
My question is more general in that are the missed RMDs overlooked once we liquidate the entirety of the IRA accounts since they would be taxed at a higher rate. See the following two articles in reference to my question.
- If you miss an RMD, you may avoid the penalty by emptying the account within five years of the owner's death. "However, depending on the size of the IRA and the age of the beneficiary, it might be smarter to pay the penalty than to liquidate the account simply to avoid the penalty," says Twila Slesnick, author of IRAs, 401(k)s & Other Retirement Plans (Nolo, $35).
- If the taxpayer died before taking an RMD, different rules apply to the beneficiary, such as taking the entire benefit within five years of the owner’s death or beginning installments for the rest of the beneficiary’s life starting no later than a year after the owner’s death, the Internal Revenue Service said.