When a loved one is no longerwith us, do all of their financial and legal affairs cease? For the most part â€“yes. But when the loved one is over the age of 70 Â½, there could be an exception in the form of their final RMD ontheir IRA.
Many surviving designatedbeneficiaries of a decedentâ€™s IRA do not realize that Required MinimumDistributions (RMDs) have to be taken annually and up to the end, even if theowner died earlier in that year. In fact, the year of death IRA distribution isa requirement that is easy to miss.
Recently, The Slott Report took up this matter in an article titled â€œTaking the Year of Death IRA MinimumDistribution.â€
Essentially, the RMD is requiredbecause there is an attending tax burden involved. As you likely are aware, anyindividual over the age of 70 Â½ must take RMD from their IRA. When it comes tothe year of death for such an individual, their designated beneficiary of theIRA beneficiary must take the RMD even before inheriting the IRA itself.
OK; simple enough. The troubleis that it is difficult to track whether the decedent had already taken theirfull RMD in the year of their death. For example, were they on a monthlyinstallment plan? Were they waiting until the last moment? Did theymiscalculate?
So, what is the penalty forfailing to take the full RMD? Would you believe a whopping 50% of theshortfall?!
If you are the IRA owner, thenyou can see how accurate and communicated recordkeeping can help your lovedones (i.e., your designated beneficiaries) avoid an unpleasant treasure hunt todetermine the post-mortem status of your RMD.
For more information on IRAs and Estate Planning,contact IdahoEstate Planning and schedule aconsultation. Remember,good planning is no accident.