Advanced Underwriting Consultants

Question of the Day – February 28

Ask the Experts!

The professionals at Advanced Underwriting Consultants (AUC) answer the tax and technical questions posed by producers.  Here’s the question of the day.

Question: What happens to the required minimum distribution (RMD) for the year of death when an IRA owner older than 70-1/2 dies?

Answer: Many assume that the RMD will be paid to the estate of the deceased owner and the estate will be responsible for reporting the taxable income on the decedent’s final tax return.  This is wrong.

The correct answer is provided in Treas. Reg. 1.401(a)(9)-5 A-4(a):

if an employee dies on or after the required beginning date (i.e. is in “pay” status), the distribution period applicable for calculating the amount that must be distributed during the distribution calendar year that includes the employee’s death is determined as if the employee had lived throughout that year.  Thus, a minimum required distribution, determined as if the employee had lived throughout that year, is required for the year of the employee’s death and that amount must be distributed to a beneficiary to the extent it has not already been distributed to the employee.

In plain language, the rule is:

  • When an IRA owner over the age of 70-1/2 dies, a RMD for the calendar year of death is due.
  • The amount of the RMD is calculated according to the age of the decedent.
  • The due date of the RMD is December 31st of the year of death.
  • The payee of the RMD is the named beneficiary.
  • The party responsible for reporting the taxable income, if any, is the beneficiary.

Have a question for the professionals at AUC?  Feel welcome to submit it by email.  We may post your question and the answer as the question of the day.