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Author: irasmilo Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121597  
Subject: IRA RMD in year of death Date: 7/2/2014 3:59 PM
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If an IRA owner who is taking RMDs dies before taking the RMD that year, the IRA beneficiaries are responsible for figuring and distibuting the RMD. Where is the taxable income reported? (decedent's final return, estate imcome tax return, beneficiary's/beneficiaries' tax return)

Ira
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Author: Wradical Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 121044 of 121597
Subject: Re: IRA RMD in year of death Date: 7/2/2014 4:33 PM
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If an IRA owner who is taking RMDs dies before taking the RMD that year, the IRA beneficiaries are responsible for figuring and distibuting the RMD. Where is the taxable income reported? (decedent's final return, estate imcome tax return, beneficiary's/beneficiaries' tax return)

Ira

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It's taxable to "the distributee" which may be a named beneficiary, on his/her 1040, or the estate's 1041, if that's where it's paid.

It would not be on the decedent's 1040, unless it ended up going to a surviving spouse, as named beneficiary, (which would be a joint return) or unless he/she rolled the account into her own IRA.

Bill

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Author: irasmilo Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 121045 of 121597
Subject: Re: IRA RMD in year of death Date: 7/2/2014 6:48 PM
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It's taxable to "the distributee" which may be a named beneficiary, on his/her 1040, or the estate's 1041, if that's where it's paid.

In other words, "follow the money". Does the executor have any flexibility here, ie., have the RMD paid to the estate vs. paid directly to the IRA beneficiaries? Assume for the sake of argument that the IRA beneficiaries and the Estate beneficiaries are the same and have the same percentage interest in the IRA and Estate. In other words, if the Estate's marginal income tax rate is lower than the beneficiary's can the executor opt to have the RMD paid to the Estate?

Ira

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Author: Wradical Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 121046 of 121597
Subject: Re: IRA RMD in year of death Date: 7/2/2014 10:32 PM
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In other words, "follow the money". Does the executor have any flexibility here, ie., have the RMD paid to the estate vs. paid directly to the IRA beneficiaries? Assume for the sake of argument that the IRA beneficiaries and the Estate beneficiaries are the same and have the same percentage interest in the IRA and Estate. In other words, if the Estate's marginal income tax rate is lower than the beneficiary's, can the executor opt to have the RMD paid to the Estate?
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I don't think so, generally, as long as there's a properly done beneficiary designation on the account. An IRA ends up going to the estate, usually if the named beneficiary is predeceased, and the account paperwork was never updated. Otherwise, the IRA custodian will be dealing directly with the beneficiaries, and the estate (and executor, in that capacity) isn't a party to the transaction.

Considering the steep tax rates on estates and trusts, it's hard to imagine the scenario where the estate's in a lower bracket, and wanting to have the estate pay tax on it. An estate hits the top rate of 39% AND the 3.8% NII tax at $12,150 of taxable income. Of course, that can be avoided by distributing the estate's income to the beneficiaries, but then you're back at square one.

Bill

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Author: ptheland Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 121047 of 121597
Subject: Re: IRA RMD in year of death Date: 7/3/2014 11:31 AM
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I agree with Bill. If there is a designated beneficiary (or multiple beneficiaries) on the IRA, they will get the money and pay the tax. If there is no beneficiary (or no surviving beneficiary), the distribution will go to the estate and it will be taxable there, subject to the usual potential distribution of income to the estate beneficiaries.

At the end of the year, the IRA custodian will send a 1099R to whomever they wrote the check to.

--Peter

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Author: irasmilo Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 121048 of 121597
Subject: Re: IRA RMD in year of death Date: 7/3/2014 6:43 PM
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I agree with Bill. If there is a designated beneficiary (or multiple beneficiaries) on the IRA, they will get the money and pay the tax. If there is no beneficiary (or no surviving beneficiary), the distribution will go to the estate and it will be taxable there, subject to the usual potential distribution of income to the estate beneficiaries.

At the end of the year, the IRA custodian will send a 1099R to whomever they wrote the check to.


That's pretty much what I thought. The question was raised because the two sons of the decedent are the sole beneficiaries of the Estate and also the named beneficiaries of the IRA. The IRA RMD might be the only income of the Estate other than any gain/loss on the sale of decedent's residence, so the tax rate within the Estate actually could be lower than the rates paid by the beneficiaries. They approached me prior to asking the bank to pay the RMD so that they would know their options.

Thank you all for your input.

Ira

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