Pub. 11 2021-2022 Issue 3-1

coloradobankers.org 12 Year-of-Death RMDs and Unresponsive Beneficiaries: A Case Study in Bad Options By Jonathan Yahn, JD, CPC A s we approach the end of 2021, many questions remain about beneficiary payout options under the new rules brought about by the Setting Every Community Up for Retirement Enhancement (SECURE) Act. IRS guidance to address some of these questions is expected. Other questions will likely persist – questions that come up fairly regularly but are not necessarily covered in detail by the IRS. To address some of these questions, we will occasionally pose a scenario about a beneficiary issue with no clear authoritative guidance. This month, we tackle the problem of how to satisfy the year-of-death required minimum distribution (RMD) when beneficiaries are missing or unresponsive. While there may be no satisfactory answer, it’s worth considering the options. Case Study: Lots of Unsatisfactory Options If an IRA owner or plan participant dies before fully satisfying an RMD for the year, the beneficiaries are responsible for distributing that portion of the RMD not yet taken. But sometimes, beneficiaries don’t make it easy. Consider the scenario of three sisters – Alice, Blanche and Claire – who are equal beneficiaries of their mother’s only IRA. Mom died in 2021 without taking any part of her 2021 $15,000 RMD. Alice and Blanche have provided all necessary documentation, including the death certificate and their own information, to take their respective portions of the RMD ($5,000 each). Claire has been trekking in the Himalayas for the past several months. She left no contact information and has not provided a power of attorney authorization in her absence. This does not surprise Alice and Blanche, who refer to their sister as “Carefree Claire.” As 2021 draws to a close, Alice and Blanche have taken $5,000 RMDs from their inherited IRAs. They know that Claire will be stuck with a 50% penalty tax – $2,500 – if her $5,000 RMD is not removed by year-end, so they ask your advice. If an IRA owner or plan participant dies before fully satisfying an RMD for the year, the beneficiaries are responsible for distributing that portion of the RMD not yet taken. But sometimes, beneficiaries don’t make it easy.