Analysis of Required Minimum Distribution for Year of the Individual Retirement Account Owner’s Death
Often the question arises related to the need for a required minimum distribution (RMD) in the year of the individual retirement account (IRA) owner’s death. Information on this requirement is sketchy at best. The following has been gleaned from the regulations and IRS Publication 590-B.
Died before required beginning date – If the IRA owner passed away before his or her distribution required beginning date, then there is no RMD for the year of death. Where an IRA owner dies after reaching age 70.5, but before April 1 of the next year, no minimum distribution is required because death occurred before the required beginning date. (Pub 590-B, 2016)
Died after required beginning date – An RMD is required if the owner died on or after the required beginning date (Reg § 1.401(a)(9)-5, Q&A 4(a)). The IRA beneficiaries are responsible for figuring and distributing the owner's required minimum distribution in the year of death. (2016 Pub 590-A, Pg. 8).
Where an IRA owner dies before receiving his or her entire RMD in the year of death, the unpaid amount must be distributed to the named beneficiaries or, if none, the decedent’s estate (Reg. § 1.401(a)(9)-5, Q&A 4(a)). Presumably, the amounts received before death would be taxed on the decedent's final return and the remaining amount paid after death would be taxed to the beneficiary or estate (but see spouse beneficiary below). It would also appear the RMD amounts not distributed in the year of death would be subject to the 50% excess accumulation penalty. However, that penalty can be waived for reasonable cause if a corrective distribution is taken later and the spouse (if filing jointly with the decedent on the decedent’s final return) or estate executor requests penalty relief per the instructions for Form 5329.
Spouse Beneficiary - Where the spouse of the deceased owner becomes the owner of the IRA in the year of death, the spouse is required take a distribution based upon the decedent’s age and thereby satisfy the decedent’s RMD requirements (2016 Pub 590-A, Pg. 8). It is assumed that if the spouse fails to do so, the spouse will be subject to the 50% excess accumulation penalty but see the penalty waiver above.