IBA Compliance Connection

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We have a customer who opened a non-spouse inherited IRA but has not been taking required minimum distributions (RMDs). Are we liable for not sending the customer notice of the RMDs?

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In our view, you are not required to notify non-spouse inherited IRA account holders of their beneficiary RMD calculations and due dates. IRS rules require trustees to send out information about RMDs to “individuals or entities, at the time, and in the manner, prescribed by the Commissioner in revenue rulings, notices, and other guidance . . . as well as the applicable Federal tax forms and accompanying instructions.” IRS guidance states that reporting is not required with respect to IRAs of deceased owners except where the surviving spouse of a deceased IRA owner is the sole beneficiary and elects to treat an IRA as the spouse’s own. In such a case, the trustee reports RMD information to the spouse under the IRA owner rules.

Although we do not believe you are required to issue RMD notice to your non-spouse customer, we note that the penalty for failing to provide a required RMD notice is “$50 for each failure unless it is shown that such failure is due to reasonable cause.”  We also note that your customer faces a 50% excise tax on the undistributed portions of their RMDs. We recommend alerting the customer and informing him that he may request a waiver of the excise tax.

For resources related to our guidance, please see:

  • 26 CFR 1.408-8 Q&A-10 (“Q-10: Is any reporting required by the trustee, custodian, or issuer of an IRA with respect to the minimum amount that is required to be distributed from that IRA? A-10. Yes, the trustee, custodian, or issuer of an IRA is required to report information with respect to the minimum amount required to be distributed from the IRA for each calendar year to individuals or entities, at the time, and in the manner, prescribed by the Commissioner in revenue rulings, notices, and other guidance published in the Internal Revenue Bulletin (see § 601.601(d)(2)(ii)(b) of this chapter) as well as the applicable Federal tax forms and accompanying instructions.”)
  • 26 CFR 601.601(d)(2)(ii)(b) (“The Bulletin is published weekly. In order to provide a permanent reference source, the contents of the Bulletin are consolidated semiannually into an indexed Cumulative Bulletin. The Bulletin Index-Digest System provides a research and reference guide to matters appearing in the Cumulative Bulletins. These materials are sold by the Superintendent of Documents, U.S. Government Printing Office, Washington, DC 20402.”)
  • IRS Notice 2002-27 (“This notice provides guidance on the reporting required from issuers, custodians, and trustees with respect to required minimum distributions from individual retirement arrangements (IRAs).”)
  • IRS Notice 2002-27 (“If a minimum distribution is required with respect to an IRA for a calendar year and the IRA owner is alive at the beginning of the year, the trustee that held the IRA as of December 31 of the prior year must provide a statement to the IRA owner by January 31 of the calendar year regarding the required minimum distribution in accordance with either of the two alternatives in this section.”)
  • IRS Notice 2002-27 (“Reporting is also not required at this time with respect to IRAs of deceased owners . . . If reporting is required in the future . . . IRAs of deceased owners, the IRS will issue additional guidance, which will be effective prospectively.”)
  • IRS Notice 2002-27 (“If the surviving spouse of a deceased IRA owner elects to treat an IRA for which the spouse is the sole beneficiary as the spouse’s own IRA by redesignating the IRA as an account in the name of the spouse as IRA owner rather than as beneficiary, the IRA trustee reports information on the required minimum distribution to the surviving spouse under the IRA owner rules in this section I.”)
  • IRS Publication 590-B (“If an RMD is required from your IRA, the trustee, custodian, or issuer that held the IRA at the end of the preceding year must either report the amount of the RMD to you, or offer to calculate it for you. The report or offer must include the date by which the amount must be distributed. The report is due January 31 of the year in which the minimum distribution is required. It can be provided with the year-end fair market value statement that you normally get each year. No report is required . . . for IRAs of owners who have died.”)
  • 26 CFR 1.408-8  Q-1, Distribution requirements for individual retirement plans, (“The IRA owner is the individual for whom an IRA is originally established by contributions for the benefit of that individual and that individual's beneficiaries.”)
  • 26 USC 6693(a)(1) (“If a person required to file a report under a provision referred to in paragraph (2) fails to file such report at the time and in the manner required by such provision, such person shall pay a penalty of $50 for each failure unless it is shown that such failure is due to reasonable cause.”)