Death of IRA Owner Before or After His / Her Required Beginning Date

• Author: Seymour Goldberg
• Profession: Senior partner in the law firm of Goldberg & Goldberg, P.C., Woodbury, New York
• Pages: 31-54

31

DEATH OF IRA OWNER

BEFORE OR AFTER HIS

OR HER REQUIRED

BEGINNING DATE

The following examples assume that the IRA owner died before the re-

quired beginning date under a number of different situations:

example 1

Assume that Marvin, an IRA owner, for whatever reason, selected his

estate as the beneficiary of his IRA account. Also assume that Marvin

died on June 1, 2016, at the age of 68.

Question: By what outside date must Marvin’s estate receive the

proceeds of Marvin’s IRA?

Answer: By no later than December 31, 2021.

Author’s Note

If an IRA owner dies before his / her required beginning date without

having a designated beneficiary, then a special five- year rule applies.

In Example 1, Marvin died before attaining his required beginning

date without having a designated beneficiary. Remember Marvin died

at age 68. His required beginning date, had he lived, would have been

April 1 after attaining age 70½ . Also remember that a designated benefi-

ciary is an individual, or certain trusts, but not an estate.

The five- year rule works like this: You first look at the date of death

of Marvin, which is June 1, 2016. You then go to the fifth anniversary

of the date of death, which brings you to June 1, 2021. The IRS then

allows you to go to the end of the calendar year, which contains the fifth

32 | Inherited IRAs

anniversary of the date of the IRA owner’s death. This brings you to the

outside date of December 31, 2021.

example 2

Assume the facts in Example 1 including the question and answer.

Question: What happens if Marvin’s deceased IRA account is not

paid out in full by December 31, 2021?

Answer: The unpaid portion of Marvin’s deceased IRA account

as of December 31, 2021, is subject to an IRS penalty of

fifty (50%) percent on the unpaid amount.

Author’s Note

If, for example, $10,000 of Marvin’s deceased IRA account was not paid

out by December 31, 2021, then the IRS could impose a penalty of 50%

on the shortfall of $10,000 which amounts to $ 5,000. This penalty may

be waived by the IRS if there was a reasonable basis for the error and

reasonable steps are being taken to remedy the error.

example 3

Assume the facts in Example 1 including the question and answer.

Question: Must Marvin’s estate wait until December 31, 2021, to

receive the proceeds of Marvin’s deceased IRA?

Answer: No. The outside date is December 31, 2021. Accord-

ing to the IRS rules, the proceeds from Marvin’s de-

ceased IRA may be received by his estate prior to

that date.

Author’s Note

From a tax planning point of view, if Marvin’s deceased IRA is substan-

tial, then the proceeds of Marvin’s deceased IRA may be paid out at any

time after his death and prior to December 31, 2021. The accountant

for Marvin’s estate should be involved in that decision. The tax deferred

growth of Marvin’s deceased IRA should be considered in the decision-