Complicated RMD questions - fee-only CPA/CFP

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bhrjwx
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Complicated RMD questions - fee-only CPA/CFP

Post by bhrjwx »

I'm helping a relative with calculating/planning RMD's and they have a mix of accounts (inherited IRA, doubly inherited IRA (spouse's parent), etc.). I'd like to hire a fee-only CPA/CFP to double check everything. Where would be a good place to find such a person? I had in mind someone like Alan S, but I'm not sure if he's still practicing.
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Re: Complicated RMD questions - fee-only CPA/CFP

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Alan S.
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Re: Complicated RMD questions - fee-only CPA/CFP

Post by Alan S. »

bhrjwx wrote: Thu May 27, 2021 1:21 pm I'm helping a relative with calculating/planning RMD's and they have a mix of accounts (inherited IRA, doubly inherited IRA (spouse's parent), etc.). I'd like to hire a fee-only CPA/CFP to double check everything. Where would be a good place to find such a person? I had in mind someone like Alan S, but I'm not sure if he's still practicing.
If all you need is how to determine the correct RMD for each such account, if you provide the background details of each account, we could post the correct calculations here.

Background info would include the original owner and DOD, whether DOD was prior to RBD or after, who is designated beneficiary, if beneficiary was older or younger than owner, and when that beneficiary passed. If spouses are beneficiaries, whether the surviving spouse elected ownership or became owner by failing to take a beneficiary RMD and when that occurred. Would also need to know if any account was inherited by an estate, or by a trust and if such trust was qualified or NQ.

Result would include the effect of the Secure Act, if applicable.
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bhrjwx
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Re: Complicated RMD questions - fee-only CPA/CFP

Post by bhrjwx »

Alan S. wrote: Thu May 27, 2021 5:53 pm
bhrjwx wrote: Thu May 27, 2021 1:21 pm I'm helping a relative with calculating/planning RMD's and they have a mix of accounts (inherited IRA, doubly inherited IRA (spouse's parent), etc.). I'd like to hire a fee-only CPA/CFP to double check everything. Where would be a good place to find such a person? I had in mind someone like Alan S, but I'm not sure if he's still practicing.
If all you need is how to determine the correct RMD for each such account, if you provide the background details of each account, we could post the correct calculations here.

Background info would include the original owner and DOD, whether DOD was prior to RBD or after, who is designated beneficiary, if beneficiary was older or younger than owner, and when that beneficiary passed. If spouses are beneficiaries, whether the surviving spouse elected ownership or became owner by failing to take a beneficiary RMD and when that occurred. Would also need to know if any account was inherited by an estate, or by a trust and if such trust was qualified or NQ.

Result would include the effect of the Secure Act, if applicable.
Thank you; I will get that information together. One question regarding "electing ownership"; is there an official process for doing so? From discussing with this individual, the accounts are titled in their name (e.g., John Doe - Inherited IRA, where John Doe is the beneficiary, not the decedent). That is, the original owner's IRA (Jane Doe - IRA) was transferred to a new account and account number under John Doe - Inherited IRA. I am assuming this is the "election" process, or if not that it will be official once they fail to take RMD's based on the decedent's schedule (the decedent was older than the beneficiary).
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Re: Complicated RMD questions - fee-only CPA/CFP

Post by Eagle33 »

bhrjwx wrote: Fri May 28, 2021 12:28 pm Thank you; I will get that information together. One question regarding "electing ownership"; is there an official process for doing so? From discussing with this individual, the accounts are titled in their name (e.g., John Doe - Inherited IRA, where John Doe is the beneficiary, not the decedent). That is, the original owner's IRA (Jane Doe - IRA) was transferred to a new account and account number under John Doe - Inherited IRA. I am assuming this is the "election" process, or if not that it will be official once they fail to take RMD's based on the decedent's schedule (the decedent was older than the beneficiary).
Hopefully John Doe has only inherited 1 IRA up to today. If he inherits more IRAs for others than Jane Doe he will have a challenge of keeping the correct RMD divisor with the correct inherited IRA if original owner name not in title of account.
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bhrjwx
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Re: Complicated RMD questions - fee-only CPA/CFP

Post by bhrjwx »

Eagle33 wrote: Fri May 28, 2021 9:54 pm
bhrjwx wrote: Fri May 28, 2021 12:28 pm Thank you; I will get that information together. One question regarding "electing ownership"; is there an official process for doing so? From discussing with this individual, the accounts are titled in their name (e.g., John Doe - Inherited IRA, where John Doe is the beneficiary, not the decedent). That is, the original owner's IRA (Jane Doe - IRA) was transferred to a new account and account number under John Doe - Inherited IRA. I am assuming this is the "election" process, or if not that it will be official once they fail to take RMD's based on the decedent's schedule (the decedent was older than the beneficiary).
Hopefully John Doe has only inherited 1 IRA up to today. If he inherits more IRAs for others than Jane Doe he will have a challenge of keeping the correct RMD divisor with the correct inherited IRA if original owner name not in title of account.
In that case, they may need to talk to the brokerages to have the IRA titles fixed. John Doe has two inherited IRAs: one is a double inherited IRA (first inherited by Jane Doe from her mother, and then John Doe from Jane Doe), one is a single inherited IRA (inherited by John Doe from Jane Doe before Jane Doe reached RBD). The single inherited IRA was inherited while stretch IRAs were allowed (I'll get exact dates in the next few days). The double inherited IRA was inherited by Jane Doe while her mother was taking RMDs (also, before the IRA law changes), so Jane Doe inherited that RMD schedule and my understanding is John Doe also inherits the existing RMD schedule. The double inherited IRA was directly inherited by Jane Doe (not through a trust) and John Doe also directly inherited it. The single inherited IRA was also directly inherited.

That said, these IRAs are at two different brokerages and both were titled without the original owner's name. The double inherited IRA is titled something like "John Doe - Inherited IRA), though the brokerage has records of the original chain of owners (Jane Doe and Mother of Jane Doe). The single inherited IRA is titled something like "John Doe - Inherited IRA from IRA".
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bhrjwx
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Re: Complicated RMD questions - fee-only CPA/CFP

Post by bhrjwx »

Alan S. wrote: Thu May 27, 2021 5:53 pm
bhrjwx wrote: Thu May 27, 2021 1:21 pm I'm helping a relative with calculating/planning RMD's and they have a mix of accounts (inherited IRA, doubly inherited IRA (spouse's parent), etc.). I'd like to hire a fee-only CPA/CFP to double check everything. Where would be a good place to find such a person? I had in mind someone like Alan S, but I'm not sure if he's still practicing.
If all you need is how to determine the correct RMD for each such account, if you provide the background details of each account, we could post the correct calculations here.

Background info would include the original owner and DOD, whether DOD was prior to RBD or after, who is designated beneficiary, if beneficiary was older or younger than owner, and when that beneficiary passed. If spouses are beneficiaries, whether the surviving spouse elected ownership or became owner by failing to take a beneficiary RMD and when that occurred. Would also need to know if any account was inherited by an estate, or by a trust and if such trust was qualified or NQ.

Result would include the effect of the Secure Act, if applicable.
Sorry for the delay; I was able to get the information. Here is the pertinent information. Let's use the terms S1 (for spouse 1 - deceased), S2 (for spouse 2).

1. IRA 1. Original owner was S1's parent, DOD September 2018. DOD was after RBD, designated beneficiaries were 3 children (did not go through trust/estate), of which S1 was one of the beneficiaries. S1 moved the IRA from one broker to another in January 2019, but did NOT take an RMD in 2019 or 2020 (though 2020 was, of course, waived). S2 has received information on the account balance as of 12/31/2018 so that the 2019 RMD can be calculated. S1 DOD was July 2020, at which point S2 inherited the IRA (did not go through a trust/estate). S2 did NOT make any ownership elections, but the IRA is titled something like "S2 - Inherited IRA" (S1's name is not on the title). S2 is younger than S1.

2. IRA 2. Original owner was S1. DOD July 2020, at which point S2 inherited the IRA (did not go through a trust/estate). S1 had NOT reached RBD at the time of death. S2 did NOT make any ownership elections, but the IRA is titled something like "S2 - Inherited IRA from IRA".

3. 403B. Original owner was S1, directly inherited by S2, unclear if anything needs to be done here.

For IRA 1, it looks like S2 needs to file either Form 14568 or 14568-H. However, it's a little confusing because 14568-H is for affected participants, but in this case it's the beneficiary filing on behalf of the participant. In any case, it sounds like S2 needs:

1. 14568 or 14568-H
2. An attached letter explaining the circumstances (S1 was diagnosed with terminal cancer and forgot to take the first RMD on the inherited IRA)
3. Form 5329
4. 1040? Not clear how to do a mid-year VCP apart from a tax return

Other than clearing up titling for both IRA 1 and IRA 2, it's not clear if any other action needs to be taken. Clearly, the missed RMD is the biggest issue, but the titling is easier to clear up now rather than later.

Please let me know if I need to provide additional information.
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Re: Complicated RMD questions - fee-only CPA/CFP

Post by Alan S. »

bhrjwx wrote: Sun Jun 20, 2021 7:58 pm
Alan S. wrote: Thu May 27, 2021 5:53 pm
bhrjwx wrote: Thu May 27, 2021 1:21 pm I'm helping a relative with calculating/planning RMD's and they have a mix of accounts (inherited IRA, doubly inherited IRA (spouse's parent), etc.). I'd like to hire a fee-only CPA/CFP to double check everything. Where would be a good place to find such a person? I had in mind someone like Alan S, but I'm not sure if he's still practicing.
If all you need is how to determine the correct RMD for each such account, if you provide the background details of each account, we could post the correct calculations here.

Background info would include the original owner and DOD, whether DOD was prior to RBD or after, who is designated beneficiary, if beneficiary was older or younger than owner, and when that beneficiary passed. If spouses are beneficiaries, whether the surviving spouse elected ownership or became owner by failing to take a beneficiary RMD and when that occurred. Would also need to know if any account was inherited by an estate, or by a trust and if such trust was qualified or NQ.

Result would include the effect of the Secure Act, if applicable.
Sorry for the delay; I was able to get the information. Here is the pertinent information. Let's use the terms S1 (for spouse 1 - deceased), S2 (for spouse 2).

1. IRA 1. Original owner was S1's parent, DOD September 2018. DOD was after RBD, designated beneficiaries were 3 children (did not go through trust/estate), of which S1 was one of the beneficiaries. S1 moved the IRA from one broker to another in January 2019, but did NOT take an RMD in 2019 or 2020 (though 2020 was, of course, waived). S2 has received information on the account balance as of 12/31/2018 so that the 2019 RMD can be calculated. S1 DOD was July 2020, at which point S2 inherited the IRA (did not go through a trust/estate). S2 did NOT make any ownership elections, but the IRA is titled something like "S2 - Inherited IRA" (S1's name is not on the title). S2 is younger than S1.

2. IRA 2. Original owner was S1. DOD July 2020, at which point S2 inherited the IRA (did not go through a trust/estate). S1 had NOT reached RBD at the time of death. S2 did NOT make any ownership elections, but the IRA is titled something like "S2 - Inherited IRA from IRA".

3. 403B. Original owner was S1, directly inherited by S2, unclear if anything needs to be done here.

For IRA 1, it looks like S2 needs to file either Form 14568 or 14568-H. However, it's a little confusing because 14568-H is for affected participants, but in this case it's the beneficiary filing on behalf of the participant. In any case, it sounds like S2 needs:

1. 14568 or 14568-H
2. An attached letter explaining the circumstances (S1 was diagnosed with terminal cancer and forgot to take the first RMD on the inherited IRA)
3. Form 5329
4. 1040? Not clear how to do a mid-year VCP apart from a tax return

Other than clearing up titling for both IRA 1 and IRA 2, it's not clear if any other action needs to be taken. Clearly, the missed RMD is the biggest issue, but the titling is easier to clear up now rather than later.

Please let me know if I need to provide additional information.
For IRA 1 - There is no direct IRA guidance that makes a successor beneficiary responsible for missed RMDs of a designated beneficiary for the year of death of the designated beneficiary, much less for prior years. Therefore, making up the 2019 beneficiary RMD is optional. Also, there is no option for the spouse of a non spouse inherited IRA beneficiary to assume ownership, and EPCRS correction forms and procedures do not apply to IRAs that are not SEP or SIMPLE IRAs. All S 2 must do is be sure the inherited IRA title shows S 2's name as beneficiary of either parent or S 1, preferably S 1, and to name their own successor beneficiary. The 10 year rule applies with no annual RMDs, but the IRA must be drained by 12/31/2030. So not much is required now other than to get the inherited IRA titled correctly.

IRA 2 - This was owned by S 1, therefore S 2 does have the option to assume ownership. Typically, if S 2 is under 59.5 and there will be any potential need to take distributions, election of ownership is delayed until S 2 reaches 59.5 and can withdraw without penalty. If ownership is assumed, there are no beneficiary RMDs and as owner the RMDs do not start until S 2 reaches 72. Further, if S-2 does NOT assume ownership, as a sole spousal beneficiary the beneficiary RMDs do not start until the year S 1 would have reached 72, but once they do start they will be more than the RMD as owner. To simplify these options, S 2 should probably elect ownership if they have reached 59.5. Ownership of a sole spousal inherited IRA can be done at anytime.

403b - Similar to the IRA. After retitling choices include a direct rollover to an inherited IRA or to an owned IRA (spousal rollover) using same age considerations as above. The inherited 403b could also be retitled and left in place if the plan permits until S 2 reaches 59.5 to get penalty free distributions, and then rolled over to an owned IRA.

No reason that these owned IRAs, once created must be separate accounts. They could be combined with S 2's other owned IRA accounts.
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bhrjwx
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Re: Complicated RMD questions - fee-only CPA/CFP

Post by bhrjwx »

Alan S. wrote: Mon Jun 21, 2021 2:09 pm
bhrjwx wrote: Sun Jun 20, 2021 7:58 pm
Alan S. wrote: Thu May 27, 2021 5:53 pm
bhrjwx wrote: Thu May 27, 2021 1:21 pm I'm helping a relative with calculating/planning RMD's and they have a mix of accounts (inherited IRA, doubly inherited IRA (spouse's parent), etc.). I'd like to hire a fee-only CPA/CFP to double check everything. Where would be a good place to find such a person? I had in mind someone like Alan S, but I'm not sure if he's still practicing.
If all you need is how to determine the correct RMD for each such account, if you provide the background details of each account, we could post the correct calculations here.

Background info would include the original owner and DOD, whether DOD was prior to RBD or after, who is designated beneficiary, if beneficiary was older or younger than owner, and when that beneficiary passed. If spouses are beneficiaries, whether the surviving spouse elected ownership or became owner by failing to take a beneficiary RMD and when that occurred. Would also need to know if any account was inherited by an estate, or by a trust and if such trust was qualified or NQ.

Result would include the effect of the Secure Act, if applicable.
Sorry for the delay; I was able to get the information. Here is the pertinent information. Let's use the terms S1 (for spouse 1 - deceased), S2 (for spouse 2).

1. IRA 1. Original owner was S1's parent, DOD September 2018. DOD was after RBD, designated beneficiaries were 3 children (did not go through trust/estate), of which S1 was one of the beneficiaries. S1 moved the IRA from one broker to another in January 2019, but did NOT take an RMD in 2019 or 2020 (though 2020 was, of course, waived). S2 has received information on the account balance as of 12/31/2018 so that the 2019 RMD can be calculated. S1 DOD was July 2020, at which point S2 inherited the IRA (did not go through a trust/estate). S2 did NOT make any ownership elections, but the IRA is titled something like "S2 - Inherited IRA" (S1's name is not on the title). S2 is younger than S1.

2. IRA 2. Original owner was S1. DOD July 2020, at which point S2 inherited the IRA (did not go through a trust/estate). S1 had NOT reached RBD at the time of death. S2 did NOT make any ownership elections, but the IRA is titled something like "S2 - Inherited IRA from IRA".

3. 403B. Original owner was S1, directly inherited by S2, unclear if anything needs to be done here.

For IRA 1, it looks like S2 needs to file either Form 14568 or 14568-H. However, it's a little confusing because 14568-H is for affected participants, but in this case it's the beneficiary filing on behalf of the participant. In any case, it sounds like S2 needs:

1. 14568 or 14568-H
2. An attached letter explaining the circumstances (S1 was diagnosed with terminal cancer and forgot to take the first RMD on the inherited IRA)
3. Form 5329
4. 1040? Not clear how to do a mid-year VCP apart from a tax return

Other than clearing up titling for both IRA 1 and IRA 2, it's not clear if any other action needs to be taken. Clearly, the missed RMD is the biggest issue, but the titling is easier to clear up now rather than later.

Please let me know if I need to provide additional information.
For IRA 1 - There is no direct IRA guidance that makes a successor beneficiary responsible for missed RMDs of a designated beneficiary for the year of death of the designated beneficiary, much less for prior years. Therefore, making up the 2019 beneficiary RMD is optional. Also, there is no option for the spouse of a non spouse inherited IRA beneficiary to assume ownership, and EPCRS correction forms and procedures do not apply to IRAs that are not SEP or SIMPLE IRAs. All S 2 must do is be sure the inherited IRA title shows S 2's name as beneficiary of either parent or S 1, preferably S 1, and to name their own successor beneficiary. The 10 year rule applies with no annual RMDs, but the IRA must be drained by 12/31/2030. So not much is required now other than to get the inherited IRA titled correctly.

IRA 2 - This was owned by S 1, therefore S 2 does have the option to assume ownership. Typically, if S 2 is under 59.5 and there will be any potential need to take distributions, election of ownership is delayed until S 2 reaches 59.5 and can withdraw without penalty. If ownership is assumed, there are no beneficiary RMDs and as owner the RMDs do not start until S 2 reaches 72. Further, if S-2 does NOT assume ownership, as a sole spousal beneficiary the beneficiary RMDs do not start until the year S 1 would have reached 72, but once they do start they will be more than the RMD as owner. To simplify these options, S 2 should probably elect ownership if they have reached 59.5. Ownership of a sole spousal inherited IRA can be done at anytime.

403b - Similar to the IRA. After retitling choices include a direct rollover to an inherited IRA or to an owned IRA (spousal rollover) using same age considerations as above. The inherited 403b could also be retitled and left in place if the plan permits until S 2 reaches 59.5 to get penalty free distributions, and then rolled over to an owned IRA.

No reason that these owned IRAs, once created must be separate accounts. They could be combined with S 2's other owned IRA accounts.
Thank you for the detailed reply. I unfortunately have more questions than I did before, but I think I'm moving in the right direction. To clarify:

1. For IRA 1, I thought given that S2 is the spouse of S1, and S1 inherited the IRA from S1's parent BEFORE the 10-year rule came into effect, S2 would inherit the "inherited RMD schedule" of S1's parent. You're saying that's not the case, and that S2 effectively inherited the account from S1's parent AFTER the 10-year rule came into effect, correct? ETA: https://www.kitces.com/blog/successor-b ... eneficary/ phrases it as "it is not possible to be an Eligible Designated Beneficiary of an Eligible Designated Beneficiary… because 'any beneficiary' of an eligible designated beneficiary must distribute the inherited assets 'within 10 years after the death.'", so of course that matches your explanation.

2. Regarding the missed RMD's on IRA 1, are you saying the IRS can't enforce the 50% excise tax on S2 for S1's failure to take RMD's, even if they filed a joint return?

3. For IRA 2, S2 inherited the IRA when S2 was older than 59.5. In that case, it sounds like S2 should elect ownership. How does one go about doing this? It seems that the titling (which only has S2's name on it) sort of implies this, but perhaps there's another step?

4. Just to clarify, the 403b needs to be retitled similar to the other accounts?

5. I forgot to mention, there is also a 457b; I'm assuming that needs to be correctly titled similar to the others?
Alan S.
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Re: Complicated RMD questions - fee-only CPA/CFP

Post by Alan S. »

bhrjwx wrote: Mon Jun 21, 2021 4:02 pm
Thank you for the detailed reply. I unfortunately have more questions than I did before, but I think I'm moving in the right direction. To clarify:

1. For IRA 1, I thought given that S2 is the spouse of S1, and S1 inherited the IRA from S1's parent BEFORE the 10-year rule came into effect, S2 would inherit the "inherited RMD schedule" of S1's parent. You're saying that's not the case, and that S2 effectively inherited the account from S1's parent AFTER the 10-year rule came into effect, correct?

Yes. Those were the pre Secure Rules. The Secure Act states that an already inherited IRA pre Secure becomes subject to the Secure Act's 10 year rule when the beneficiary passes after 2019 (post Secure).


2. Regarding the missed RMD's on IRA 1, are you saying the IRS can't enforce the 50% excise tax on S2 for S1's failure to take RMD's, even if they filed a joint return?

I have not heard of the IRS ever levying the penalty on a beneficiary for the prior beneficiary's RMD failures, although the vast majority of such beneficiaries are not spouses of the original beneficiary. The only situation where the IRS addresses this in the Regs are when a designated beneficiary fails to complete the year of death RMD of the owner. Your situation is not an owner's RMD, it is a beneficiary RMD and the year is not for the year of death of that beneficiary, it is a prior year. So the chances of an issue are very remote. If S 2 will sleep better making up that 2019 RMD, the penalty waiver 5329 would be a stand alone 5329 for 2019 under S 1's SSN.

3. For IRA 2, S2 inherited the IRA when S2 was older than 59.5. In that case, it sounds like S2 should elect ownership. How does one go about doing this? It seems that the titling (which only has S2's name on it) sort of implies this, but perhaps there's another step?

The current titling makes no sense, but it does imply an inherited IRA. To assume ownership, S 2 would formally notify the custodian that they are electing to assume ownership. The custodian should then transfer the balance into an owned IRA for S 2,and all references to S 1 or original owner would drop off. This should be a non reportable transfer (no 1099R), and further avoids any issues with the one rollover limit being used in the event of a distribution and 60 day rollover. S 2 would then be treated as having owned the IRA for the entire year of 2021, erasing any beneficiary RMD which otherwise might have been due.


4. Just to clarify, the 403b needs to be retitled similar to the other accounts?

Yes, although the 403b may have a different format for showing beneficiary accounts. The 403b would be retitled as soon as all required data was submitted including death cert and beneficiary data. S 2 cannot assume ownership of a 403b like they can with an inherited IRA, so the only option for ownership would be doing a direct rollover to an owned IRA for S 2. This will be reported on a 1099R but will not be taxable. NOTE: Any Roth 403b balance must be directly rolled over to a Roth IRA with great care to make sure that the right type IRA receives the appropriate balance from the 403b.

5. I forgot to mention, there is also a 457b; I'm assuming that needs to be correctly titled similar to the others?

Yes, same procedures as the 403b above as long as this is a govt 457b. Non govt 457b plans cannot be rolled to an IRA.
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bhrjwx
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Re: Complicated RMD questions - fee-only CPA/CFP

Post by bhrjwx »

Alan S. wrote: Mon Jun 21, 2021 4:48 pm
bhrjwx wrote: Mon Jun 21, 2021 4:02 pm
Thank you for the detailed reply. I unfortunately have more questions than I did before, but I think I'm moving in the right direction. To clarify:

1. For IRA 1, I thought given that S2 is the spouse of S1, and S1 inherited the IRA from S1's parent BEFORE the 10-year rule came into effect, S2 would inherit the "inherited RMD schedule" of S1's parent. You're saying that's not the case, and that S2 effectively inherited the account from S1's parent AFTER the 10-year rule came into effect, correct?

Yes. Those were the pre Secure Rules. The Secure Act states that an already inherited IRA pre Secure becomes subject to the Secure Act's 10 year rule when the beneficiary passes after 2019 (post Secure).


2. Regarding the missed RMD's on IRA 1, are you saying the IRS can't enforce the 50% excise tax on S2 for S1's failure to take RMD's, even if they filed a joint return?

I have not heard of the IRS ever levying the penalty on a beneficiary for the prior beneficiary's RMD failures, although the vast majority of such beneficiaries are not spouses of the original beneficiary. The only situation where the IRS addresses this in the Regs are when a designated beneficiary fails to complete the year of death RMD of the owner. Your situation is not an owner's RMD, it is a beneficiary RMD and the year is not for the year of death of that beneficiary, it is a prior year. So the chances of an issue are very remote. If S 2 will sleep better making up that 2019 RMD, the penalty waiver 5329 would be a stand alone 5329 for 2019 under S 1's SSN.

3. For IRA 2, S2 inherited the IRA when S2 was older than 59.5. In that case, it sounds like S2 should elect ownership. How does one go about doing this? It seems that the titling (which only has S2's name on it) sort of implies this, but perhaps there's another step?

The current titling makes no sense, but it does imply an inherited IRA. To assume ownership, S 2 would formally notify the custodian that they are electing to assume ownership. The custodian should then transfer the balance into an owned IRA for S 2,and all references to S 1 or original owner would drop off. This should be a non reportable transfer (no 1099R), and further avoids any issues with the one rollover limit being used in the event of a distribution and 60 day rollover. S 2 would then be treated as having owned the IRA for the entire year of 2021, erasing any beneficiary RMD which otherwise might have been due.


4. Just to clarify, the 403b needs to be retitled similar to the other accounts?

Yes, although the 403b may have a different format for showing beneficiary accounts. The 403b would be retitled as soon as all required data was submitted including death cert and beneficiary data. S 2 cannot assume ownership of a 403b like they can with an inherited IRA, so the only option for ownership would be doing a direct rollover to an owned IRA for S 2. This will be reported on a 1099R but will not be taxable. NOTE: Any Roth 403b balance must be directly rolled over to a Roth IRA with great care to make sure that the right type IRA receives the appropriate balance from the 403b.

5. I forgot to mention, there is also a 457b; I'm assuming that needs to be correctly titled similar to the others?

Yes, same procedures as the 403b above as long as this is a govt 457b. Non govt 457b plans cannot be rolled to an IRA.
Thank you very much; this has been immensely helpful. Despite hours of Googling, it was difficult to find succinct answers to many of these questions.

To summarize my understanding.

1. IRA 1: S2 should have the account retitled to something like "S2 inherited IRA from S1". The entire account balance must be withdrawn by 12/31/2030. The missed RMD by S1 requires no action.

2. IRA 2: S2 should formally notify the custodian that they are electing to assume ownership. While the custodian created a new account titled "S2 inherited IRA" by transferring S1's IRA to S2, there should be another transfer as part of assuming ownership AND the title should change to a "standard" IRA title (no "inherited").

3. 403b: should be titled similarly (S1 and S2's names on the title). S2 can either leave the 403b where it is (maintaining it as an inherited 403b subject to S1's RMD schedule) or assume ownership (then using S2's RMD schedule). The entire account is pre-tax. For simplicity, it's probably best to assume ownership (transferring to an owned IRA) so that there is only one RMD schedule to worry about (notwithstanding the 10-year withdrawals on IRA 1 and the 457b, which are pretty simple to follow).

4. Non-governmental 457b: the only option available (as far as it was explained to me) was a 10-year withdrawal schedule. Confirm titling (S1 and S2's names on the title); no further action.

Note: S2 is only one year younger than S1 and both S1 (at the time of death) and S2 (presently) have not reached their RBD. That said, I'm going to encourage S2 to get everything done now (e.g., assuming ownership) rather than waiting because it's easy to forget.

Thank you again.
Alan S.
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Re: Complicated RMD questions - fee-only CPA/CFP

Post by Alan S. »

bhrjwx wrote: Tue Jun 22, 2021 5:29 am
Alan S. wrote: Mon Jun 21, 2021 4:48 pm
bhrjwx wrote: Mon Jun 21, 2021 4:02 pm
Thank you for the detailed reply. I unfortunately have more questions than I did before, but I think I'm moving in the right direction. To clarify:

1. For IRA 1, I thought given that S2 is the spouse of S1, and S1 inherited the IRA from S1's parent BEFORE the 10-year rule came into effect, S2 would inherit the "inherited RMD schedule" of S1's parent. You're saying that's not the case, and that S2 effectively inherited the account from S1's parent AFTER the 10-year rule came into effect, correct?

Yes. Those were the pre Secure Rules. The Secure Act states that an already inherited IRA pre Secure becomes subject to the Secure Act's 10 year rule when the beneficiary passes after 2019 (post Secure).


2. Regarding the missed RMD's on IRA 1, are you saying the IRS can't enforce the 50% excise tax on S2 for S1's failure to take RMD's, even if they filed a joint return?

I have not heard of the IRS ever levying the penalty on a beneficiary for the prior beneficiary's RMD failures, although the vast majority of such beneficiaries are not spouses of the original beneficiary. The only situation where the IRS addresses this in the Regs are when a designated beneficiary fails to complete the year of death RMD of the owner. Your situation is not an owner's RMD, it is a beneficiary RMD and the year is not for the year of death of that beneficiary, it is a prior year. So the chances of an issue are very remote. If S 2 will sleep better making up that 2019 RMD, the penalty waiver 5329 would be a stand alone 5329 for 2019 under S 1's SSN.

3. For IRA 2, S2 inherited the IRA when S2 was older than 59.5. In that case, it sounds like S2 should elect ownership. How does one go about doing this? It seems that the titling (which only has S2's name on it) sort of implies this, but perhaps there's another step?

The current titling makes no sense, but it does imply an inherited IRA. To assume ownership, S 2 would formally notify the custodian that they are electing to assume ownership. The custodian should then transfer the balance into an owned IRA for S 2,and all references to S 1 or original owner would drop off. This should be a non reportable transfer (no 1099R), and further avoids any issues with the one rollover limit being used in the event of a distribution and 60 day rollover. S 2 would then be treated as having owned the IRA for the entire year of 2021, erasing any beneficiary RMD which otherwise might have been due.


4. Just to clarify, the 403b needs to be retitled similar to the other accounts?

Yes, although the 403b may have a different format for showing beneficiary accounts. The 403b would be retitled as soon as all required data was submitted including death cert and beneficiary data. S 2 cannot assume ownership of a 403b like they can with an inherited IRA, so the only option for ownership would be doing a direct rollover to an owned IRA for S 2. This will be reported on a 1099R but will not be taxable. NOTE: Any Roth 403b balance must be directly rolled over to a Roth IRA with great care to make sure that the right type IRA receives the appropriate balance from the 403b.

5. I forgot to mention, there is also a 457b; I'm assuming that needs to be correctly titled similar to the others?

Yes, same procedures as the 403b above as long as this is a govt 457b. Non govt 457b plans cannot be rolled to an IRA.
Thank you very much; this has been immensely helpful. Despite hours of Googling, it was difficult to find succinct answers to many of these questions.

To summarize my understanding.

1. IRA 1: S2 should have the account retitled to something like "S2 inherited IRA from S1". The entire account balance must be withdrawn by 12/31/2030. The missed RMD by S1 requires no action.

2. IRA 2: S2 should formally notify the custodian that they are electing to assume ownership. While the custodian created a new account titled "S2 inherited IRA" by transferring S1's IRA to S2, there should be another transfer as part of assuming ownership AND the title should change to a "standard" IRA title (no "inherited").

3. 403b: should be titled similarly (S1 and S2's names on the title). S2 can either leave the 403b where it is (maintaining it as an inherited 403b subject to S1's RMD schedule) or assume ownership (then using S2's RMD schedule). The entire account is pre-tax. For simplicity, it's probably best to assume ownership (transferring to an owned IRA) so that there is only one RMD schedule to worry about (notwithstanding the 10-year withdrawals on IRA 1 and the 457b, which are pretty simple to follow).

4. Non-governmental 457b: the only option available (as far as it was explained to me) was a 10-year withdrawal schedule. Confirm titling (S1 and S2's names on the title); no further action.

Note: S2 is only one year younger than S1 and both S1 (at the time of death) and S2 (presently) have not reached their RBD. That said, I'm going to encourage S2 to get everything done now (e.g., assuming ownership) rather than waiting because it's easy to forget.

Thank you again.
Mostly correct.
Except - for 403b if left as inherited the beneficiary RMD for S 2 would be based on S 2's table I life expectancy as this was inherited directly from S 1, the original participant. Once S 2 does a direct rollover to their own IRA, RMDs would change to the Uniform table once RMDs begin for S 2 as owner of the IRA.

For non govt 457b, any registration format of the plan should suffice as long as it reflects the plan as inherited. Best to find out more about the 10 year withdrawal schedule, for example how much must be distributed each year. Remember, these plans are unfunded so there is a trade off between receiving the benefits in tax unfriendly amounts v. risk of loss of principal if the firm goes bankrupt before all distributions are made.
Topic Author
bhrjwx
Posts: 32
Joined: Mon Jan 29, 2018 12:49 pm

Re: Complicated RMD questions - fee-only CPA/CFP

Post by bhrjwx »

Alan S. wrote: Tue Jun 22, 2021 12:49 pm
bhrjwx wrote: Tue Jun 22, 2021 5:29 am
Alan S. wrote: Mon Jun 21, 2021 4:48 pm
bhrjwx wrote: Mon Jun 21, 2021 4:02 pm
Thank you for the detailed reply. I unfortunately have more questions than I did before, but I think I'm moving in the right direction. To clarify:

1. For IRA 1, I thought given that S2 is the spouse of S1, and S1 inherited the IRA from S1's parent BEFORE the 10-year rule came into effect, S2 would inherit the "inherited RMD schedule" of S1's parent. You're saying that's not the case, and that S2 effectively inherited the account from S1's parent AFTER the 10-year rule came into effect, correct?

Yes. Those were the pre Secure Rules. The Secure Act states that an already inherited IRA pre Secure becomes subject to the Secure Act's 10 year rule when the beneficiary passes after 2019 (post Secure).


2. Regarding the missed RMD's on IRA 1, are you saying the IRS can't enforce the 50% excise tax on S2 for S1's failure to take RMD's, even if they filed a joint return?

I have not heard of the IRS ever levying the penalty on a beneficiary for the prior beneficiary's RMD failures, although the vast majority of such beneficiaries are not spouses of the original beneficiary. The only situation where the IRS addresses this in the Regs are when a designated beneficiary fails to complete the year of death RMD of the owner. Your situation is not an owner's RMD, it is a beneficiary RMD and the year is not for the year of death of that beneficiary, it is a prior year. So the chances of an issue are very remote. If S 2 will sleep better making up that 2019 RMD, the penalty waiver 5329 would be a stand alone 5329 for 2019 under S 1's SSN.

3. For IRA 2, S2 inherited the IRA when S2 was older than 59.5. In that case, it sounds like S2 should elect ownership. How does one go about doing this? It seems that the titling (which only has S2's name on it) sort of implies this, but perhaps there's another step?

The current titling makes no sense, but it does imply an inherited IRA. To assume ownership, S 2 would formally notify the custodian that they are electing to assume ownership. The custodian should then transfer the balance into an owned IRA for S 2,and all references to S 1 or original owner would drop off. This should be a non reportable transfer (no 1099R), and further avoids any issues with the one rollover limit being used in the event of a distribution and 60 day rollover. S 2 would then be treated as having owned the IRA for the entire year of 2021, erasing any beneficiary RMD which otherwise might have been due.


4. Just to clarify, the 403b needs to be retitled similar to the other accounts?

Yes, although the 403b may have a different format for showing beneficiary accounts. The 403b would be retitled as soon as all required data was submitted including death cert and beneficiary data. S 2 cannot assume ownership of a 403b like they can with an inherited IRA, so the only option for ownership would be doing a direct rollover to an owned IRA for S 2. This will be reported on a 1099R but will not be taxable. NOTE: Any Roth 403b balance must be directly rolled over to a Roth IRA with great care to make sure that the right type IRA receives the appropriate balance from the 403b.

5. I forgot to mention, there is also a 457b; I'm assuming that needs to be correctly titled similar to the others?

Yes, same procedures as the 403b above as long as this is a govt 457b. Non govt 457b plans cannot be rolled to an IRA.
Thank you very much; this has been immensely helpful. Despite hours of Googling, it was difficult to find succinct answers to many of these questions.

To summarize my understanding.

1. IRA 1: S2 should have the account retitled to something like "S2 inherited IRA from S1". The entire account balance must be withdrawn by 12/31/2030. The missed RMD by S1 requires no action.

2. IRA 2: S2 should formally notify the custodian that they are electing to assume ownership. While the custodian created a new account titled "S2 inherited IRA" by transferring S1's IRA to S2, there should be another transfer as part of assuming ownership AND the title should change to a "standard" IRA title (no "inherited").

3. 403b: should be titled similarly (S1 and S2's names on the title). S2 can either leave the 403b where it is (maintaining it as an inherited 403b subject to S1's RMD schedule) or assume ownership (then using S2's RMD schedule). The entire account is pre-tax. For simplicity, it's probably best to assume ownership (transferring to an owned IRA) so that there is only one RMD schedule to worry about (notwithstanding the 10-year withdrawals on IRA 1 and the 457b, which are pretty simple to follow).

4. Non-governmental 457b: the only option available (as far as it was explained to me) was a 10-year withdrawal schedule. Confirm titling (S1 and S2's names on the title); no further action.

Note: S2 is only one year younger than S1 and both S1 (at the time of death) and S2 (presently) have not reached their RBD. That said, I'm going to encourage S2 to get everything done now (e.g., assuming ownership) rather than waiting because it's easy to forget.

Thank you again.
Mostly correct.
Except - for 403b if left as inherited the beneficiary RMD for S 2 would be based on S 2's table I life expectancy as this was inherited directly from S 1, the original participant. Once S 2 does a direct rollover to their own IRA, RMDs would change to the Uniform table once RMDs begin for S 2 as owner of the IRA.

For non govt 457b, any registration format of the plan should suffice as long as it reflects the plan as inherited. Best to find out more about the 10 year withdrawal schedule, for example how much must be distributed each year. Remember, these plans are unfunded so there is a trade off between receiving the benefits in tax unfriendly amounts v. risk of loss of principal if the firm goes bankrupt before all distributions are made.
Thank you for the final corrections; I was not familiar with the nuances of uniform, joint, and single life tables.
Alan S.
Posts: 12669
Joined: Mon May 16, 2011 6:07 pm
Location: Prescott, AZ

Re: Complicated RMD questions - fee-only CPA/CFP

Post by Alan S. »

Basically, the Uniform Table is for all IRA owners married and single except for those whose sole beneficiary spouse is more than 10 years younger. In those cases, the joint tables are used that incorporate both ages and produce a lower RMD than the Uniform Table.

The single life table is for beneficiaries and produces a much higher RMD than the Uniform table, which is for owners other than those who qualify for the joint tables.

These tables can be found in Pub 590 B.
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