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Background: My wife is one of four equal beneficiaries of

Background: My wife is one of...
Background:
My wife is one of four equal beneficiaries of the Estate of her late aunt, who died in 2010. Her aunt left an IRA without designated beneficiaries. The Estate became the "interim" beneficiary of the IRA while the IRS was asked to determine (as a result of a private letter ruling request made in early 2011) if my wife (and the other 3 benes) could be the beneficiaries of the IRA. The Estate attorney [EA] said that no required minimum required distributions [RMDs] should be taken until the determination was made, lest the determination be jeopardized. The determination was made in early 2013, immediately after which the Estate took the 2011, 2012, and 2013 RMDs. The balance of the Estate IRA was then distributed in equal parts to the 4 beneficiaries (into inherited IRA accounts).
My questions:
1. Which years require filing for waivers of the 50% IRS penalty for late RMDs?
(The EA thinks that only 2011 requires this, as he says the Estate fiscal year -that ends on October 31st- somehow gives him a pass on having to file a waiver for the 2012 RMD.)
2. Who files the waiver, the Estate or the 4 subsequent beneficiaries? (The EA claims the Estate must file any waiver(s) but the taxes must be paid directly by the beneficiaries.)
3. Must each of the 4 beneficiaries take their own 2013 RMDs form their newly inherited IRAs (that's in addition to the 2013 RMD taken by the Estate earlier this year)?
Thank you in advance for a response that is legally responsible. (I have always stuck to the letter of the law and don't want to get into trouble with this late RMD/waiver business.)
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Answered in 10 minutes by:
10/22/2013
Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 12,875
Experience: Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
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Lane :

Hi,

Lane :

1. Which years require filing for waivers of the 50% IRS penalty for late RMDs? I agree wit the EA here, if the 2012 DIst was done before the end of the Estate's tax year

Customer:

Hi

Customer:

OK

Customer:

But wouldn't the 2012 esttae year be Oct 2012, not Oct 2013?

Lane :

2. Who files the waiver, the Estate or the 4 subsequent beneficiaries? Again, I would agress, because during that tim the estate WAS the beneficiary (quite honestly I'm surprised that the bene's didn't simply inherit as per the will here... someone must have made a mistake, regarding the beneficiaries not beng on file?

Lane :

OCt 2012 through 2013

Lane :

Because the ESTATE has already taken

Lane :

and that relates to the next questions, no there should not be RMDs taken twice in the same tax year

Lane :

although they don't match ... Calendar vs fiscal, the 2013 RMD has been taken

Lane :

It's interesting that the estate doesn't pay the taxes for the years it TOOK the RMD, however, ... does the PLR address this in some way?

Customer:

No clue as I haven't read the ruling. I think the ruling simply states my wife and the other 3 benes get to be benes of the IRA. The EA had the 4 benes individually pay the tax as it said the forthcoming form K-1s to the denes will show each bene's share of the rmds.

Lane :

Now, it WOULD make sense that the bene's pay tax on the BALANCE? But if newly created beneficial IRAs were created then they won't have RMD (and taxes) until 2014 in my opinion

Lane :

Ahhh ok, that means the trust took a deduction for the distribution so THEY have to pay the tax ... that makes sense

Lane :

AND you want it that way ... as the tax bralets of the trust ae much lower (higher tax on the same amount of money)

Lane :

sorry "brackets"

Lane :

Not over $2,450 15% of the taxable income


Over $2,450 but $367.50 plus 25% of
not over $5,700 the excess over $2,450


Over $5,700 but $1,180 plus 28% of
not over $8,750 the excess over $5,700


Over $8,750 but $2,034 plus 33% of
not over $11,950 the excess over $8,750


Over $11,950 $3,090 plus 39.6% of
the excess over $11,950

Customer:

OK so to recap, based on the info I provided you, your opinion is that only the late 2011 RMD requires a waiver request, which will be filed by the Estate. And my wife does not need to take her own 2013 RMD by 12/31/13 that would be in addition to the 2013 RMD the estate already took. Does that sound right?

Lane :

You have it ... what IRS will want to see is a 2013 tax year RMD taken and it was, otherwise you have double taxation

Customer:

Ok. You have been very helpful and I am very appreciative of your no-nonsense assistance. Thank you very much.

Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 12,875
Experience: Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
Verified
Lane and 87 other Tax Specialists are ready to help you
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Thanks much, Alex.

Sounds like you have a good EA.


If you'd like to work with ME again just say "For Lane only," at the beginning of your next question


OR set me up as your preferred expert on your home page.


Regardless, thanks again,

Lane


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Lane
Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 12,875
12,875 Satisfied Customers
Experience: Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986

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