Much has been written in recent years in financial journals and media outlets about the year-of-death required minimum distribution (RMD). Nevertheless, the rules governing the year-of-death RMD continue to confuse retirement account owners and financial advisors. On July 18,2024, the IRS released final regulations on year-of-death RMDs. These regulations clarify the year-of-death RMD rules and include changes that make taking the year-of-death RMD less onerous on beneficiaries. This column summarizes these regulations.
Required Beginning Date
When an individual reaches his or her required beginning date (RBD), the individual must begin taking his or her RMDs. An individual’s RBD depends on the individual’s birthdate and is summarized in the following table:
| Birthdate | RBD (Age) |
| Before July 1, 1949
July 1, 1949 – December 31, 1950 January 1, 1951 – December 31, 1959 After December 31, 1959 |
70.5
72 73 75 |
Note that the first RMD must be taken by April 1 following the year an individual reaches his or her RBD. Every year thereafter, the RMD must be taken by December 31 of that year, and that includes an RMD in the year of death of a retirement account owner. Retirement accounts subject to RMDs include traditional IRAs, qualified retirement plans such as 401(k), 403(b) and 457 plans, and the Thrift Savings Plan (TSP). However, with respect to qualified retirement plans and the TSP there is a “working” exception with respect to the first year RBD. If an individual is a participant in an employer-sponsored retirement plan and is still working for the employer at the time he or she reaches their RBD, then the first year RMD is due April 1 following the year the individual retires. A federal employee who reaches his or her RBD can delay his or her first TSP RMD until April 1 following the year he or she retires from federal service.
Roth IRAs are of no concern with respect to year-of-death RMDs. This is because Roth IRAs are not subject to lifetime RMDs. Roth IRA owners are always deemed to die before their RBD. As such, even if a Roth IRA owner dies at age 100, the Roth IRA owner’s designated beneficiaries will not have to worry about year-of-death RMD.
Who Takes the Year-of-Death RMD?
The IRS’ final regulations state that it is the responsibility of the retirement account beneficiary to take the year-of-death RMD. When a retirement plan or a traditional 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 the final year RMD. Note that the year-of-death RMD is not paid to the estate of the deceased unless the estate was named as beneficiary.
Learn more about your retirement benefits at our No-Cost webinars, featuring Ed Zurndorfer -
The following is an excerpt from the IRS’ final regulations on year-of-death RMD:
“If an individual who is required to take a distribution in a calendar year dies before taking that distribution and has named more than one beneficiary, then any of those beneficiaries can satisfy the individual’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.”
The IRS rule on year-of-death RMD can be beneficial in several situations. One such situation is when a charitable organization has been named as an account beneficiary. Cashing out the charity’s percentage could satisfy what remains of the final year RMD. Another situation is when one of the named beneficiaries needs cash. That beneficiary’s payout of the remaining final year RMD could potentially satisfy the balance of the year-of-death RMD, allowing the other beneficiaries to avoid an immediate distribution.
How Is the Year-of-Death RMD Distributed?
When a traditional IRA owner subject to RMD dies, the IRA custodian will typically open an “inherited” account for the named beneficiary(s) first, transfer the assets of the IRA to the inherited IRA account and then pay out the year-of-death IRA RMD from the inherited IRA account. Form 1099-R (Distributions from Pensions, Annuities, Retirement on Profit Sharing Plans, IRAs, etc.) for the distribution. The 1099-R issued for the distribution will include the beneficiary’s Social Security number on tax identification number and will be coded as a “death distribution” and is not subject to an early withdrawal penalty. The distribution will be on the beneficiary’s personal tax return, and not on the estate’s tax return or the decedent’s final tax return. As such, the beneficiary is responsible for paying any federal and state income taxes due on the year-of-death RMD. The following example illustrates:
Example 1. Grandpa Jones leaves his $200,000 traditional IRA to his four grandchildren. Each grandchild is to receive 20% of the IRA. Grandpa Jones names a charity as beneficiary of the final 20 percent. Grandpa Jones dies at age 87 without taking his final RMD of $200,000/14.4, or $13,889. His charity takes a full payout of its 20 percent of $200,000, or $40,000 beneficiary share. The $40,000 share more than satisfies Grandpa Jones’ year-of-death RMD, allowing the four grandchildren to avoid any immediate distributions.
Year-of-Death RMD Deadline and Penalty
Until now, the deadline for taking the year-of-death RMD was December 31 of the year of death. When death occurred late in the year (late November or in December) this tight deadline was often missed, adding unnecessary stress on IRA beneficiaries. Note that the penalty for missing any RMDs is 25 percent of whatever amount was not taken. This was reduced to 10 percent, if the missed RMD is corrected in a timely fashion.
The IRS’ proposed regulations provided an automatic waiver of the missed RMD penalty if the year-of-death RMD was taken by the beneficiary’s tax filing deadline, including extensions. This is definitely a welcome relief. However, the IRS went a step further in the final regulations extending the deadline to take the year-of-death RMD even further. Here is the summary of the final regulations with respect to year-of-death RMD deadline:
New IRS Regulations on Year-of-Death RMDs
“The final regulations extend the deadline for the beneficiary to take the missed required minimum distribution and be eligible to the automatic waiver. The new deadline is the later of the tax filing deadline for the taxable year that begins with or within the calendar year in which the individual died and the end of the following year.”
For most traditional IRA beneficiaries, this means the year-of-death RMD deadline is now December 31 of the year after the year of death. The following example illustrates:
Example 2. Grandma Mary, age 84, has a traditional IRA. Grandma Mary’s sole beneficiary of her IRA is her granddaughter Elizabeth, age 25. Grandma Mary normally takes her traditional IRA RMD on December 15 of every year. Grandma Mary died on December 10, 2023, five days before she took her 2023 traditional IRA RMD.
Elizabeth is responsible for taking the 2023 year-of-death IRA RMD. However, in her grief and confusion she failed to take it before December 31, 2023..
But under the final regulations, Elizabeth is eligible for an automatic waiver of the 25 percent missed RMD penalty if she takes the 2023 year-of-death RMD by December 31, 2024. Since the IRA custodian has already established an “inherited” IRA for Elizabeth and transferred Grandma Mary’s traditional IRA to Elizbeth’s inherited IRA, Elizabeth can simply take the year-of-death RMD from her inherited IRA sometime before December 31, 2024. She will receive a 2024 1099-R and owe federal and state income taxes on the distribution, reporting the distribution on her 2024 federal and state income tax returns.
You Might Also Enjoy This Podcast
Ed Zurndorfer, EA, ATA, CFP®, CLU®, ChFC®, CEBS®, ChFEBC℠: Federal Employee Benefits Expert
A former career Federal employee, Ed has published a staggering 1,200+ separate articles on Federal Benefits and Retirement!
Just “Google” his name, and you are likely to find a plethora of sites that contain his writings. Drawn to its mission to reach, teach
and serve Feds, Serving Those Who Serve is the only financial planning practice with which Ed has chosen to affiliate in over
20 years teaching. In addition to conducting Federal Benefits seminars for Serving Those Who Serve, you can find Ed’s
writings here on our blog in the FedZone, and on Fed-Soup, MyFederalRetirement, FederalNews Radio and NITP.
He is a member of the Maryland Society of Accountants, the National Association of Enrolled Agents, the International Society of Certified Employee Benefits Specialists, the Financial Planning Association, the National Association of Health Underwriters,
and the Society of Financial Service Professionals. Since 1999, Ed has taught many thousands of Federal employees about
their benefits, in person and at Federal agencies all over the country. Ed is a true national treasure.
Edward A. Zurndorfer is a CERTIFIED FINANCIAL PLANNER™ professional, Chartered Life Underwriter, Chartered Financial Consultant, Chartered Federal Employee Benefits Consultant, Certified Employees Benefits Specialist and IRS Enrolled Agent in Silver Spring, MD. Tax planning, Federal employee benefits, retirement and insurance consulting services offered through EZ Accounting and Financial Services, and EZ Federal Benefits Seminars, located at 833 Bromley Street - Suite A, Silver Spring, MD 20902-3019 and telephone number 301-681-1652. Raymond James is not affiliated with and does not endorse the opinions or services of Edward A. Zurndorfer or EZ Accounting and Financial Services. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional.