Questions and Answers
An IRA owner died in 2007 before taking his required minimum distribution (RMD) for the year. His three nonspouse beneficiaries did not take the distribution either, saying they wanted everything to go through the estate. Will there be a penalty?
Whether a beneficiary is an individual, an estate, or some other entity, the RMD regulations require that beneficiaries satisfy any undistributed required minimum distribution of a deceased IRA owner. The deadline for such a distribution is December 31 of the year of death.
IRC Section 4974 imposes a 50 percent penalty tax on an excess accumulation for any beneficiary who fails to take his/her share of an undistributed RMD. A beneficiary reports this tax by filing IRS Form 5329, Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts, with his/her federal income tax return. The IRS may waive this tax if a beneficiary can show that any shortfall in distributions was due to reasonable error and that he/she is taking steps to remedy the shortfall.
(Posted: 05/14/2008)
