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RMD the year of death

By Terry Savage on November 26, 2018 | Economy & Taxes

Dear Terry,
My sister 72 1/2 yrs old passed away in February of 2018. She had taken her RMD for 2017 of approx 50000. Throughout this year we have been disbursing her accounts. She had two IRA’s. One valued at 16000 with no beneficiary listed. This account was distributed to her three siblings in October. Her second acct has 7 beneficiaries. 5 will be taking a cash disbursement. Are these two accounts considered her RMD or do we still have to calculate an RMD for her in 2018. I so how do we do this.?
Thank you
Elaine Barron

Terry Says

Phew — this is complicated!   The very first thing you should do is contact the custodian (hopefully its’s a large company like Fidelity) to handle this for you.

Here is the official rule for distributions.  But note that is mostly applies to those who keep the money in an inherited IRA.  Instead of just distributing it, the beneficiaries should have rolled it into an inherited IRA –where it could keep growing, tax-deferred, subject to the rules below.

Qualified beneficiaries

If you inherit the IRA, you must begin taking RMDs by December 31 of the year after the year of the IRA owner’s death, based on the longer of:

  • Your life expectancy, or
  • The IRA owner’s remaining life expectancy.

You must take an RMD for the year of the IRA owner’s death if the owner hasn’t already taken one for that year.

If the beneficiaries simply took the money, they owe taxes on it for 2018.  And each needs to seek tax advice on how much is owed.  The custodian will send the IRS a form noting the payout.

The two who presumably rolled their money into an inherited IRA will  follow the rules listed in italics above.  Note:  their first RMD will start in the year AFTER the year of death, so 2019.  Again, double check with the plan custodian because they will be the ones issuing the 1099s and also the forms for RMDs to the rollover accounts.

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