IMPORTANT TAX INFORMATION – PLEASE READ AND RESPOND
2. It must be re-issued reporting the FMV as the Date of Death or Zero!
3. If the zero option is used, the statement must also include notice to the deceased IRA Holder’s representative that the Date of Death FMV is available upon request. If requested it must be provided within 90 days in any reasonable format.
JM Consultants Year of Death Procedures and Reporting
their SSNs and/or TINs. The reported FMV is their share of the December 31, 2013 total bal-ance.
5. Form 5498s must be prepared by May 31, 2014 for the deceased IRA Holder and all benefici-aries.
Example 2: Same situation as Example 1, but the IRA Custodian/Trustee was not informed of the death until June 15, 2015.
Solution 2: 1. The financial institution must again amend the decedent’s FMV Statement 2. Again it is re-issued reporting the FMV as of the Date of Death or Zero!
3. If the zero option is used, the statement must include notice to the decedent’s representative that the Date of Death FMV is available upon request. If requested it MUST BE provided within 90 days in any reasonable format.
4. The Form 5498 for the decedent MUST BE corrected.
5. The IRA Custodian/Trustee must also determine who the beneficiaries are and prepare a December 31, 2013 FMV Statement for each of them, using their names as beneficiary of the decedent with their SSNs or TINs, using their share of the December 31, 2013 balance.
6. Form 5498s must be prepared for each beneficiary.
Caution: If any transactions occurred between the date of death and the notification of death, they must be accounted for by the financial institution because the IRS’ position is the IRA balance as of the date of death belongs to the beneficiaries, NOT the estate of the deceased, regardless of when notified.
In addition, the IRA beneficiaries are responsible for the 2013 RMD which was not taken by the IRA Holder or by the beneficiaries. The 50% penalty applies to the beneficiaries who were responsible for it starting the date of death. They may request an abatement of the penalty when filing/amending their 2013 personal tax returns, show-ing the penalty. Since, in this example, it will not be paid out sooner than 2014, reported on a 2014 Form 1099-R, it will be taxed in 2014. (Hint: If they have not satisfied the delinquent RMD there is little chance the IRS would abate any penalty, regardless of the reason.)
JM Consultants Year of Death Procedures and Reporting
Alternative Reporting Method One
Below is an example of a Form 5498 reporting the fair market value for a deceased IRA Holder using the dece-dent’s name and Social Security Number as of his date of death:
If the death occurred in 2013
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Trustworthy Financial Corp.
300 Integrity Way Anywhere, USA 00000
Russell N. Cattell
123 Rodeo Way
Bronco TX 77777
123456
99-9999999 888-88-8888 14750.63
X
Trustworthy Financial Corp.
300 Integrity Way Anywhere, USA 00000
Russell N. Cattell
123 Rodeo Way Bronco TX 77777
123456
99-9999999 888-88-8888 14750.63
X
JM Consultants Year of Death Procedures and Reporting
Under alternative reporting method one, if the beneficiary has not closed the inherited IRA, the beneficiary’s fair market value is reported on Form 5498 using the beneficiary’s name and Social Security Number as of the end of the year of death as follows:
If the death occurred in 2013
Trustworthy Financial Corp.
300 Integrity Way Anywhere, USA 00000
Brandon Cattell
as Beneficiary of Russell N. Cattell 345 Rodeo Way
Bronco TX 77777
123456
88-8888888 999-99-9999 15,000.00
X
2
20 013
Trustworthy Financial Corp.
300 Integrity Way Anywhere, USA 00000
Brandon Cattell
as Beneficiary of Russell N. Cattell
345 Rodeo Way Bronco TX 77777
123456
88-8888888 999-99-9999 15,000.00
X
JM Consultants Year of Death Procedures and Reporting
Alternative Reporting Method Two
Below is an example of a Form 5498 reporting the fair market value for a deceased IRA Holder as of the end of the year of death (zero):
If the death occurred in 2013
Trustworthy Financial Corp.
300 Integrity Way Anywhere, USA 00000
Russell N. Cattell
123 Rodeo Way
Bronco TX 77777
123456
99-9999999 888-88-8888 0.00
X
2
20 013
Trustworthy Financial Corp.
300 Integrity Way Anywhere, USA 00000
Russell N. Cattell
123 Rodeo Way Bronco TX 77777
123456
99-9999999 888-88-8888 0.00
X
JM Consultants Year of Death Procedures and Reporting
Under alternative reporting method two, if the beneficiary has not closed the inherited IRA, the beneficiary’s fair market value is reported on Form 5498 as of the end of the year of death as follows:
If the death occurred in 2013
Trustworthy Financial Corp.
300 Integrity Way Anywhere, USA 00000
Brandon Cattell
as Beneficiary of Russell N. Cattell 345 Rodeo Way
Bronco TX 77777
123456
88-8888888 999-99-9999 15630.32
X
2
20 013
Trustworthy Financial Corp.
300 Integrity Way Anywhere, USA 00000
Brandon Cattell
as Beneficiary of Russell N. Cattell
345 Rodeo Way Bronco TX 77777
123456
88-8888888 999-99-9999 15630.32
X
Death Distribution Checklist (Implement Upon Notification of Death)
✔ Stop all systematic distributions to/for the IRA Holder.
✔ Find most recent beneficiary designation, and send a letter to each beneficiary on file informing him or her of his or her percentage of the IRA they are to inherit based on the beneficiary designation, their distribution options based on whether the IRA Holder died before or on or after his or her required beginning date and the beneficiary’s relationship to the IRA Holder, the deadline for making distribution elections, the impact of failing to make an election, and the need to contact your finan-cial organization immediately if they believe any of the information listed in the letter is incorrect. In cases where the IRA Holder died on or after his or her required beginning date, the letter should also inform the beneficiary if the IRA Holder satisfied his or her RMD requirement in the year of death, and if not, how much remains to be taken in order to satisfy the RMD requirement for the year of death.
✔ Transfer beneficiary balances to beneficiary accounts according to beneficiary designation directions and system requirements. Each beneficiary should have a separate account and each account’s title should clearly indicate that the IRA is inherited (e.g., Tom Jones spouse beneficiary of Sally Jones).
All distributions from a Traditional, SEP, or SIMPLE IRA beneficiary subaccount, whether spousal or non-spousal, should be coded “4” on Form 1099-R. This is true even for year of death distribu-tions that must be taken on behalf of a deceased IRA Holder. Distribudistribu-tions from a Roth IRA benefi-ciary account will either be coded as “T”, if it is unknown if the five-year rule has been satisfied or the IRA custodian/ trustee has not been satisfied, or coded as “Q”, if it is known that the five-year rule has been satisfied.
✔ Spouses may transfer assets to a Traditional or Roth IRA in his or her own name, however, the finan-cial organization should not transfer Traditional IRA assets to an IRA in the spouse’s name unless the spouse directs the financial organization to do so. If a spouse decides to take this approach and does not take the year of death distribution before transferring the assets into his or her own account, when he or she does take the year of death distribution, it should be coded as a code “7”, not a code
“4”. If the inherited IRA is a Roth IRA, no year of death distribution exists, since Roth IRAs are not subject to RMDs during the lifetime of the original Roth IRA Holder.
✔ Before processing beneficiary distributions, a (certified) death certificate should be delivered as proof of the IRA Holder’s death.
✔ As beneficiary’s contact the financial organization and make distribution elections, and name succes-sor beneficiaries, beneficiary distribution logs should be established in each beneficiary file to track elections and annual distributions. Federal withholding elections and subsequent notices are also required.
✔ If a beneficiary wants to transfer an inherited IRA to an inherited IRA at another financial institution, it is not necessary to create an inherited IRA at the sending institution before transferring, because the transaction is not treated like a distribution or a reportable event; however, some organization’s prefer, and it is recommended, to transfer from an inherited account to avoid confusion as to the type of IRA that is being transferred. In either case, the inherited funds/assets should not be transferred before receiving written authorization from the receiving financial institution.
JM Consultants Year of Death Procedures and Reporting
Deceased IRA Holder Name_____________________________
Original Account #____________________
Date of Birth_______________________
Date of Death_______________________
Date Copy of Certified Death Certificate Was Received?_____________________
Location of Death Certificate if Not Held In File?_____________________________
Death Before or On or After RBD? (April 1 following age 701/2year) Yes or No (circle) If After, Date Year of Death Distribution Was Satisfied_________________________
Beneficiary Distribution Option (See Beneficiary Option Charts for Possible Options)_____________
Beneficiary Account #_______________________
Type of Beneficiary ____________________________________________
(e.g., spouse, non-spouse, qualified trust, nonqualified trust, entity) Sole Beneficiary? Yes or No (circle)
If no, what are names and DOBs (if applicable) of other beneficiaries?
____________________________________________________________________________________
____________________________________________________________________________________
____________________________________________________________________________________
____________________________________________________________________________________
____________________________________________________________________________________
Names of Beneficiaries with Account Balances Who Have Not Taken Full Distributions as of _______________________ (date for determining designated beneficiary)
____________________________________________________________________________________
____________________________________________________________________________________
____________________________________________________________________________________
____________________________________________________________________________________
____________________________________________________________________________________
Inherited IRA Beneficiary(ies)
Date Name(s) and Percentage
Year of IRA Holder Death_______________
Distribution Option (see charts for options before and after RBD)____________________
If life expectancy (LE) is elected, recalculated or nonrecalculated?______________________
Amount of year of death distribution taken by beneficiary and when ________________________