When a person reaches the required beginning date (RBD) – generally April 1 of the year after the year the person turns age 73 – required minimum distributions (RMDs) must officially start on traditional IRAs. But what if an IRA owner dies in a year when the RMD is due, but before the full RMD has been paid out?
Ultimately, it is the responsibility of the beneficiary to take whatever remains of the unpaid year-of-death RMD. If there is more than one beneficiary, the 2024 final regulations, released on July 18,2024, confirm what we have long understood the rule to be: When an IRA has multiple beneficiaries, and if there is a shortfall of the year-of-death RMD, then any of the beneficiaries can take what remains of this final distribution. The year-of-death RMD is not paid to the estate unless the estate was the named beneficiary. From the summary of the final regulations:
“If an employee who is required to take a distribution in a calendar year dies before taking that distribution and has named more than one designated beneficiary, then any of those beneficiaries can satisfy the employee’s requirement to take a distribution in that calendar year (as opposed to each of the beneficiaries being required to take a proportional share of the unpaid amount).”
This rule can be helpful in many situations. For example, if a charity is named as a partial beneficiary, cashing out the charity’s percentage could cover what remains of the year-of-death RMD. The same holds true if, for example, one of the beneficiaries needs cash now. That lone beneficiary’s payout could potentially satisfy the balance of the year-of-death RMD, allowing the other beneficiaries to avoid an immediate distribution.
Historically, the deadline for taking the year-of-death RMD was December 31 of the year OF death. When death occurred late in the year, this tight deadline was often missed, adding unnecessary stress on beneficiaries. Missing a year-of-death RMD could result in the same penalty as missing any other RMD – 25% of whatever amount was not taken (reduced to 10% if the missed RMD is timely corrected).
In the IRS’s final regulations, the deadline to take the year-of-death RMD (and thereby avoid any penalty) is officially extended: “The final regulations extend the deadline for the beneficiary to take the missed required minimum distribution and be eligible for the automatic waiver. The new deadline is the later of the tax filing deadline for the taxable year of the beneficiary that begins with or within the calendar year in which the individual died and the end of the following calendar year.”
For most beneficiaries, this means the year-of-death deadline in now December 31 of the year AFTER the year of death.
Example: Grampa Joe, age 80, has a traditional IRA with his granddaughter Grace, age 22, as beneficiary. Grampa Joe’s annual RMD is normally paid on December 15. However, he dies on December 10, 2024. Granddaughter Grace is responsible for taking the 2024 year-of-death RMD, but in her grief and confusion, she fails to take it. Grace is eligible for an automatic waiver of the 25% missed RMD penalty if she takes the 2024 year-of-death RMD by December 31, 2025.
Specializing in private wealth management, we provide education, guidance, and strategies to help you achieve a tax-efficient retirement income.
Specializing in private wealth management, we provide education, guidance, and strategies to help you achieve a tax-efficient retirement income.
Investment advisory services offered through Donato Wealth Management, PLLC, dba Empower Wealth Management and Empower Wealth & Tax (“Empower Wealth Management” or “EWM”),
an SEC registered investment adviser that only conducts business in jurisdictions where it is properly registered, or is excluded or exempted from registration requirements. Registration as an investment adviser is not an endorsement of the firm by securities regulators and does not mean the adviser has achieved a specific level of skill or ability. The firm is not engaged in the practice of law or accounting.
The information presented is believed to be current. It should not be viewed as personalized investment advice. All expressions of opinion reflect the judgment of the authors on the date of publication and may change in response to market conditions. You should consult with a professional adviser before implementing any strategies discussed. Content should not be viewed as an offer to buy or sell any of the securities mentioned, or as legal or tax advice. You should always consult an attorney or tax professional regarding your specific legal or tax situation. Personal investment advice can only be rendered after the engagement of EWM, execution of required documentation, and receipt of required disclosures. All investment and insurance strategies have the potential for profit or loss. Asset allocation and diversification will not necessarily improve an investor’s returns and cannot eliminate the risk of investment losses. Past performance is no guarantee of future results. For more information, please go to https://adviserinfo.sec.gov and search by our firm name or by our CRD #305031.
Insurance products and tax services are offered through Senior Tax and Insurance Advisors, PLLC, dba Empower Wealth Group (“Empower Wealth Group” or “EWG”). Any comments regarding safe and secure investments and guaranteed income streams refer only to fixed insurance products. They do not in any way refer to investment advisory products offered through EWM. Rates and guarantees provided by insurance products and annuities are subject to the financial strength of the issuing insurance company; not guaranteed by any bank or the FDIC. EWG is not affiliated with or endorsed by the U.S. Government, Social Security Administration, nor the federal Medicare program. You may be contacted by a licensed insurance agent. Calling the number above will direct you to a licensed insurance agent. EWG may not offer every plan available in your area. Any information provided is limited to plans available in your area. Please contact Medicare.gov or 1-800-MEDICARE.
EWM and EWG are both affiliated companies of Empower Wealth, LLC (“Empower”). Investment adviser representatives of EWM may have a financial incentive to recommend tax and insurance products and/or services offered through EWG which presents a conflict of interest. This conflict is addressed by EWM’s adoption of its Code of Ethics, which requires that all EWM’s Associated Persons place the interest of clients ahead of their own. Clients of EWM are also free to choose their own tax and/or insurance professionals and are under no obligation to utilize the services offered through any related entities or persons associated with Empower.
Strategic Partners listed on this page are not employees of EWM and are not affiliated through common ownership.
We do not offer every plan available in your area. Any information we provide is limited to those plans we do offer in your area. Please contact Medicare.gov or 1-800-MEDICARE to get information on all of your options.
© Empower Wealth Management All Rights Reserved.
