Many surviving designated beneficiaries of a decedent’s IRA do not realize that Required Minimum Distributions (RMDs) have to be taken annually and up to the end, even if the owner died earlier in that year. In fact, the year of death IRA distribution is a requirement that is easy to miss whether you live in Overland Park or elsewhere.
Recently, The Slott Report took up this matter in an article titled “Taking the Year of Death IRA Minimum Distribution.”.
Essentially, the RMD to be taken because there is an attending tax burden involved. Generally speaking, any individual over the age of 70 ½ must take RMD from their IRA. When it comes to the year of death for such an individual, their designated beneficiary of the IRA beneficiary must take the RMD even before inheriting the IRA itself.
OK, simple enough? Unfortunately, it is difficult to track whether the decedent had already taken their full RMD in the year of his or her death? For example, were they on a monthly installment plan? Were they waiting until the last moment? Did they miscalculate?
So, what is the penalty for failing to take the full RMD? Would you believe a whopping 50% of the shortfall?
If you are the IRA owner, then you can see how important keeping accurate and communicated recordkeeping can be to help your loved ones (i.e., your designated beneficiaries) avoid an unpleasant treasure hunt just to determine the post-mortem status of your RMD.
Remember: When making your financial, tax and estate plans, don't go it alone. Be sure to engage competent professional counsel.
Reference: The Slott Report (April 30, 2013) “Taking the Year of Death IRA Minimum Distribution”