RMD Not Taken in Year of Death: What to Do

A Required Minimum Distribution, or RMD, is the amount that must be withdrawn annually from certain retirement accounts once the owner reaches a specific age. This rule ensures that the funds, which have grown tax-deferred, are eventually distributed and taxed. The obligation to take an RMD does not disappear when the account owner passes away. A final RMD for the year of death is only required if the account owner died on or after their Required Beginning Date—generally April 1 of the year after they turn age 73. If an owner who was required to take a distribution dies on or after this date without having withdrawn the full amount, a final RMD is still due.

Discovering that this final withdrawal was missed can be a point of concern for an executor or the account’s beneficiaries. This situation creates a specific set of responsibilities and potential tax implications that must be addressed. The process involves calculating the correct amount, taking the distribution, and dealing with any resulting penalties. Understanding the specific steps required by the Internal Revenue Service (IRS) is necessary for resolving the oversight and ensuring the account is handled in compliance with tax law.

Determining the Final RMD Amount

When an IRA owner dies after their required beginning date for distributions, the responsibility for taking any unpaid RMD for the year of death shifts to the beneficiaries of the account. If the account has multiple beneficiaries, any one of them can satisfy the requirement, as the IRS does not mandate that each beneficiary take a proportional share of the final RMD. The total required amount must be withdrawn from the deceased’s account to fulfill the obligation for that year.

The calculation for this final RMD is based on the rules that would have applied to the account owner had they lived through the entire year. To determine the amount, you must first identify the fair market value of the IRA as of December 31 of the year prior to the year of death. This value is then divided by a life expectancy factor found in the IRS’s Uniform Lifetime Table. The specific factor to use is based on the age the account owner would have been in their year of death.

For example, if an individual passed away in 2025 at age 78, their final RMD calculation would use their age of 78. The corresponding distribution period from the Uniform Lifetime Table for a 78-year-old is 22.0. If the IRA’s value on December 31, 2024, was $440,000, the final RMD would be $20,000 ($440,000 divided by 22.0). This is the amount the beneficiary must withdraw.

If the original account owner had already taken a portion of their RMD before passing away, the beneficiary is only responsible for withdrawing the remaining shortfall. If the owner had multiple IRAs, the total RMD is determined across all accounts and any partial distribution taken from one account reduces the total amount due from all of them. Communication between beneficiaries of different accounts may be needed to ensure the total remaining RMD is satisfied correctly.

Correcting the Missed Distribution

Once the final RMD amount has been determined, the beneficiary must take the corrective distribution. Under recent IRS regulations, the deadline for a beneficiary to withdraw this final RMD is the later of their tax filing deadline for the year of death, including extensions, or December 31 of the year following the year of death. Taking the distribution by this new, later deadline is important for avoiding penalties.

This distribution has direct tax consequences for the person who receives it. The withdrawn RMD amount is considered taxable income to the beneficiary, not to the deceased’s estate. The financial institution will report this distribution to both the beneficiary and the IRS using Form 1099-R. The beneficiary will then need to report this income on their personal income tax return for the year in which they actually receive the funds.

The beneficiary should ensure they are clear with the financial institution that this withdrawal is to satisfy the prior year’s RMD for the deceased owner. Keeping clear records of the transaction, including the date and amount of the withdrawal, is important for tax purposes.

Handling a Missed RMD and Potential Penalties

Failing to take an RMD on time can result in an excise tax. The penalty is 25% of the shortfall, which is the difference between the amount that was required to be withdrawn and the amount that was actually taken. However, this can be reduced to 10% if the missed RMD is corrected within a specific timeframe, by the end of the second year following the year the RMD was due.

For a final RMD due in the year of an account owner’s death, recent IRS regulations provide an automatic waiver of this penalty. As long as the beneficiary withdraws the full required amount by the extended deadline mentioned previously, the penalty is automatically waived. No special form or request is needed to secure this waiver.

If a beneficiary fails to take the final RMD even by this extended deadline, they may still request a waiver of the penalty by demonstrating a reasonable cause for the delay. This is done by filing IRS Form 5329 for the year the RMD was missed. To request the waiver, they would calculate the penalty, enter zero as the tax due, and write “RC” (for Reasonable Cause) and the amount of the RMD shortfall on the dotted line next to the tax calculation.

A concise letter of explanation must be attached to Form 5329. This letter should state why the extended deadline was missed and confirm that the RMD has since been taken. The form and letter can be filed with the beneficiary’s income tax return or sent to the IRS separately. No payment for the penalty should be sent when requesting a waiver; the IRS will issue a notice if it denies the request and requires payment.