What Are the RMD Requirements in the Year of Death?

A Required Minimum Distribution, or RMD, is the amount of money that must be withdrawn annually from certain retirement accounts, such as traditional IRAs and 401(k)s, by their owners. These rules ensure that the tax-deferred growth on these investments does not continue indefinitely. When an account owner passes away, specific regulations dictate whether a final RMD must be taken for their year of death. The process involves determining if a distribution is necessary, calculating the correct amount, and understanding the tax consequences for the person who inherits the account.

Determining if a Final RMD is Due

Whether a final RMD is owed for the deceased account owner depends on their Required Beginning Date (RBD), which is the deadline to take their very first RMD. The age for this first RMD is 73, though this increases to 75 for individuals born in 1960 or later. The RBD is April 1 of the year after the account owner reaches the required age.

If the owner dies before reaching their RBD, no RMD is required for them for the year of their death. For example, if an individual turns 73 during the year but passes away before the following April 1, no final RMD is due for the deceased. This is because they had not yet reached the mandatory date to begin withdrawals.

A different set of rules applies if the account owner dies on or after their RBD. In this situation, a final RMD for the year of death must be taken unless the owner had already withdrawn the full required amount before they passed. It becomes the responsibility of the account’s beneficiary or the executor of the estate to verify the deceased’s financial records. They must check if any distributions were taken during the calendar year of death and if those withdrawals satisfy the calculated RMD amount for that year.

Calculating and Fulfilling the Final RMD

The calculation is performed as if the account owner had lived for the entire year. It requires two pieces of data: the retirement account’s fair market value as of December 31 of the year prior to death, and a specific life expectancy factor from the IRS. This factor is found in the Uniform Lifetime Table, which is the standard table used by account owners for their own lifetime RMD calculations.

The account balance from the previous year-end is divided by the life expectancy factor corresponding to the deceased’s age in the year of their death. For instance, to find the RMD for a person who died at age 75, you would use the factor listed for a 75-year-old in the Uniform Lifetime Table. This determines the minimum amount that must be distributed from the account for that final year.

Once the amount is calculated, the procedural action of taking the distribution must be completed. While the estate’s executor is responsible for ensuring this obligation is met, the funds are paid directly to the designated beneficiary listed on the account. If there are multiple beneficiaries, any one beneficiary can take the distribution to satisfy the requirement; it does not have to be a proportional withdrawal. The deadline for this distribution is December 31 of the year following the year of the account owner’s death.

Tax Treatment of the Year-of-Death RMD

The distributed amount is considered taxable income, just as it would have been for the original account owner. The responsibility for paying the income tax on the year-of-death RMD falls on the beneficiary who receives the funds.

This income is reported on the beneficiary’s personal income tax return for the year the distribution is made, not on the deceased’s final tax return or an estate tax return. To facilitate this reporting, the financial institution holding the retirement account will issue a Form 1099-R, “Distributions from Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, etc.,” directly to the beneficiary. This form will show the gross distribution amount and will be coded to indicate it is a death distribution, which also exempts it from any early withdrawal penalties.

If the account owner did not name a living person as a beneficiary and instead named their estate, the RMD is paid to the estate. Consequently, the income from the distribution is reported on the estate’s income tax return, Form 1041, and the estate is responsible for paying the associated taxes.

Special Considerations for Roth IRAs

Unlike the traditional, tax-deferred retirement accounts discussed previously, the original owners of Roth IRAs are never required to take RMDs during their lifetime. This distinction has a direct impact on the year-of-death requirements.

Because there is no lifetime RMD obligation for the original owner, there is no RMD requirement for the deceased in their year of death. This holds true regardless of the Roth IRA owner’s age or whether they would have passed their theoretical RBD. Beneficiaries inheriting a Roth IRA do not need to concern themselves with calculating or taking a final RMD for the deceased owner.