Reply To: Inherited IRA mechanics

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Alan S.

Bruce, no. The transfer can be done first. IRA transfers are not distributions and therefore are not limited by any RMD requirements. However, this does not apply to qualified plans since movement to an inherited IRA is a reported direct rollover which is treated as a distribution. With a distribution the RMD must be completed first and if it isn’t part of the direct rollover equal to the RMD must be reported as a taxable distribution and removed from the inherited IRA.

Another factor with respect to IRAs is the IRA RMD aggregation rules. In the case of the 75 year old decedent, he might have completed his year of death RMD from any other IRA he might have owned, so the custodian of this particular IRA has no idea if that RMD was completed unless they are told by the beneficiary. The custodian cannot force out that RMD like a 401k administrator can. And all the IRS cares about is that (any) beneficiary completes the year of death RMD by the end of the year from any inherited IRA account, although in many cases it is not completed until the following year. In that case the beneficiary must file a 5329 to request the penalty waiver.