Estate Tax Easing

With the Tax Cuts and Jobs Act increasing the gift and estate tax exemption to $11 million per person, advisors are focusing more on the income concerns of heirs rather than decedents. One of those major concerns is taking the required minimum distribution (RMD) from an IRA for the year of the decedent’s death.

Overlooking taking the full RMD for the last year of a person can incur a costly penalty, 50% of the remaining RMD that was not withdrawn. This often incurs when the decedent passes away late in a year and the beneficiary does not discover the shortfall until the next tax year. 

However, if this does occur, there is a way for a beneficiary to properly explain the shortfall to the IRS: Form 5329 waiver request. This form should be filed as soon as the shortfall is discovered and explain the circumstances on why the shortfall happened. If the beneficiary is a surviving spouse, the RMD is not eligible for a rollover. “In addition, the first monies taken out during a given year from the traditional IRA are considered to be applied toward the RMD amount for that year.”

See Seymour Goldberg, Ed Slott’s IRA Advisor: Tax & Estate Planning for Your Retirement Savings, January, 2019.