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Tuesday, March 22, 2022

Email Consulting Guidance – Inherited IRAs

Email Consulting Guidance – Inherited IRAs

Posted by James M. Carlson
January 2022

Q-1. Grandmother passed away In October 2021. She was 90. Her beneficiaries are her granddaughters. Grandmother had not taken her RMD yet. The granddaughters aren’t coming in. Do I just send them each a check for their share and then wait till next year to divide what’s left?

Their RMD share would be 658.17. Their portion of IRA would be 7602.42 each.

And how do I code them, just death benefit. ??

A-1. I see two likely courses of action.

1. The first is the action you suggest - make a distribution to each beneficiary for $658.17.

2. You can inform them that if they don’t withdraw the $658.17 by 12/31/21 that each technically owes the 50% tax or $329.09 unless the IRS would agree to waive the 50% tax because equity and fairness requires it. I’m not sure the IRS would agree that due to the death occurring so late in the year (???) that the withdrawal by 12/31/21 was unreasonable. If a beneficiary misses an RMD deadline, the beneficiary must file Form 5329 and complete Part IX informing the IRS the beneficiary had missed taking the RMD.

I suggest what you suggest. Set up the 2 inherited IRAs and pay each beneficiary the $658.17 before year end.

As for the remaining balance each beneficiary will be using the 10-year rule. There is no specific RMD for 2022-2030, but the inherited IRA must be closed by 12/31/2031. The general tax rule is - the beneficiary must include in their income any amount withdrawn during that year.

Q-1A. If I remember correctly. I would take their RMD out first and then the remaining money be divided and new IRA’s would be made unless they want to cash them all in.

A-1A. I’m not sure what you mean by first taking out their RMD amount for 2021. Each beneficiary is to receive their own Form 1099-R. Each beneficiary will receive or inherit 50%. There is no requirement that their share of the 2021 RMD needs to be withdrawn first. The entire inherited balance may be transferred into the inherited IRA and then each beneficiary may take their share of 2021 RMD or the beneficiary may take out more.

Posted by James M. Carlson at 14:06.54
Categories: Email Guidance