Who takes an IRA owner's unpaid required distribution after death?
Key takeaway
If the IRA owner died on or after the required beginning date, the IRA’s beneficiary or beneficiaries must receive any unpaid year of death required minimum distribution by the end of that year.
Start by asking the IRA custodian for the owner's required minimum distribution, or RMD, calculation and payment history. Compare those records before requesting the remaining payment.
Identify the beneficiary under the account terms
The account's beneficiary may be established by the owner's affirmative designation or by default provisions in the account terms, subject to applicable spousal and domestic relations requirements.
An estate may therefore be the beneficiary under default terms even when the owner did not expressly name it. Inheriting under a will alone does not make someone the IRA beneficiary.
Ask for the beneficiary designation and the governing account terms together.
Check the allocation when there are multiple IRAs
When the owner leaves an unpaid death year RMD across multiple IRAs eligible for aggregation, and their beneficiary designations are not all identical, allocate the remaining shortfall proportionately among those IRAs.
Use the preceding calendar year's closing account balances, with applicable rollover and transfer adjustments. Each IRA must distribute its allocated shortfall to a beneficiary of that IRA.
The allocation applies regardless of which IRA already paid distributions to the owner. Ask each custodian to confirm the balances, previous payments and allocated shortfall before requesting a distribution.
A spouse's ownership election preserves the unpaid obligation
A surviving spouse may elect to treat the IRA as their own only if the spouse is its sole beneficiary and has an unlimited right to withdraw. Naming a trust fails this requirement, even if the spouse is its sole beneficiary.
If the spouse makes that election in the owner's death year, the elected IRA's RMD for that year remains based on the deceased owner, to the extent unpaid before death.
The spouse is not required to take a separate RMD based on their own ownership from that IRA for the election year.
Keep the distribution separate from an account transfer
An RMD is not eligible for rollover. A direct transfer between IRA trustees that is not a distribution and rollover does not itself satisfy the transferring IRA's RMD requirement.
Before moving the account, ask how the unpaid distribution will be handled and documented.
Two related terms
Designated beneficiary
A designated beneficiary is an individual designated as beneficiary by the owner or under the account's terms.
Income in respect of a decedent
This is taxable income not properly includible in the deceased person's final or earlier income, where an estate or beneficiary acquires the right to receive it. The recipient includes it in income for the year received.
An investor perspective on tax uncertainty
"And not only is the tax postponed, but the calculation of the taxes postponed means unknown, we do not know the rate that these funds are going to be taxed that in the future. And that's, you know, that uncertainty has a cost to it"
Frequently asked questions
Is there an owner RMD for the death year if death occurred before the required beginning date?
No. An IRA owner who died before the required beginning date has no owner RMD for the year of death.
Does a Roth IRA have an unpaid lifetime RMD?
No. Roth IRA owners have no lifetime RMDs. After death, the beneficiary distribution rules apply as though the owner died before the required beginning date.
Is every dollar of an inherited traditional IRA distribution taxable?
No. Basis from the owner's nondeductible contributions remains with the inherited traditional IRA and is used to determine its nontaxable portion.
Unless a spouse treats the IRA as their own, inherited basis cannot be combined with basis in the beneficiary's own IRAs or IRAs inherited from other decedents.
If distributions come from both an inherited IRA and an own IRA, and each has basis, separate Forms 8606 are required.
Can I request a tax waiver for a missed RMD?
Yes, if the shortfall resulted from reasonable error and you have taken, or are taking, steps to remedy it, you may request a waiver of the missed RMD excise tax.
Attach an explanatory statement and complete Form 5329 under its waiver instructions. This is a request for relief.
Sources
- Treasury Regulation §1.401(a)(9)-5: owner distributions through the year of death when death occurs on or after the required beginning date.
- Treasury Regulation §1.408-8: IRA aggregation, proportional allocation, balance adjustments, spouse elections, transfers and Roth IRA treatment. The allocation discussion applies to distribution calendar years governed by the cited regulation. Earlier calendar years use the earlier regulation.
- Treasury Regulation §1.401(a)(9)-4: designated beneficiaries, default account provisions and the distinction between account designations and inheritance under a will.
- Internal Revenue Code §691: income in respect of a decedent and inclusion by the recipient.
- IRS Publication 590‑B: inherited traditional IRA basis, separate Forms 8606 and requests for waiver of the missed distribution excise tax.