Annual calculation of RMDs?

[BarbWire]

Sorry if this has been covered; I tried searching but couldn't find the answer to my question.

I am now working through my 91 yo father's estate, and one task is transferring his 403(b) at TIAA-CREF to his widow (a spousal transfer to a traditional IRA, which is much better than an inherited IRA for an 86 yo widow).

Anyway, as I was going through statements for the past three years, I noticed that his monthly RMD never changed: it was the same in 2012, 2013, 2014 and the first two months of 2015 (until we reported his death).

How often is the RMD supposed to be calculated, and the distribution amount adjusted? I've done a general online search, and for example, TRowePrice says the RMD is recalculated every year. That sure didn't happen.

If that is correct, then TIAA-CREF blew it. Now what do I do? Wait to see if the IRS notices? I gather the underpayment penalties are stiff.

I can't wait to get her funds out of TIAA-CREF and over to Vanguard, where the Keystone Cops aren't running the show!

 

[steelyman]

The only way I can think that might happen in a legitimate way would be if the distributions were not "required minimum distributions" but a set amount specified by the owner when arranging for distributions.

There is an IRS publication describing the rules, and the RMD is calculated annually at year-end (for the following year).

 

[rodi]

If his withdrawals were larger than the minimum then he was probably ok. He may have set it up that way for budget reasons.
Or perhaps it was invested in an annuity or low interest CD... that could have the same results.

But, you're correct - the RMD is calculated based on value of the accounts on 12/31 of the previous year and the age of the owner of the account. This is done annually.

 

[Bikerdude]

I guess its possible to have the RMD withdrawals remain the same provided the IRA balance continued to fall over the years. You would have to go back and see what the year end balance was each year and do the math with the age appropriate divisor.

 

[BarbWire]

Thanks, all. I think my next step is to call TIAA-CREF and get them to calculate what his RMD should have been for 2012, 2013 and 2014 (fortunately the IRS can only go back three years unless there is evidence of fraud). I have statements with his year-end balance for 2012, 2013 and 2014, but not 2011.

All of his distribution was coming from his CREF funds rather than his TIAA Annuity. He may have set it up this way: he was really good at this stuff until age 86 or so. And I know he cleared out some of his smaller retirement accounts at other places by taking all of his RMDs from them in his 70s to simplify and eventually only have TIAA-CREF.

I suppose that TIAA-CREF should also have a record of whether he requested automatic RMD recalculation or if he said he'd do it himself.

Guess I also need to do the same detective work at TRowePrice where he had a small IRA. And the same detective work for my mother's tiny IRA at TRP, which he managed.

I'll say this: being an estate executor is very educational. I'm learning a lot that will apply to how I manage my own funds in retirement and how the financial systems work.

 

[Gill]

I think my next step is to call TIAA-CREF and get them to calculate what his RMD should have been for 2012, 2013 and 2014 (fortunately the IRS can only go back three years unless there is evidence of fraud).

I hope they'll do it for you because it really isn't their responsibility. Also, the IRS can go back indefinitely if there has been a significant understatement of income.

Bruce

 

[Bikerdude]

Here's the table. Do it yourself.

 

[BarbWire]

So, whose responsibility is it to calculate the RMD at the end of each year and tee up the January payment for that amount? The financial institution, or the individual?

 

[Gill]

So, whose responsibility is it to calculate the RMD at the end of each year and tee up the January payment for that amount? The financial institution, or the individual?

The owner of the IRA.
Bruce

 

[redduck]

I know that Fidelity, Vanguard, Scottrade, Schwab, Wells Fargo (and several other banks) do the calculations without asking them. I don't know for sure if it's their responsibility.

 

[2B]

I know that Fidelity, Vanguard, Scottrade, Schwab, Wells Fargo (and several other banks) do the calculations without asking them. I don't know for sure if it's their responsibility.

The IRS doesn't care who calculates what. They only care about the withdrawal amount meeting their rules. The taxpayer is responsible for all and any errors. I could probably successfully sue any institution that said they were calculating the correct amount but the IRS would only care about my account.

 

[Gill]

I know that Fidelity, Vanguard, Scottrade, Schwab, Wells Fargo (and several other banks) do the calculations without asking them. I don't know for sure if it's their responsibility.

They may do it as a customer service but it's not their responsibility.
Bruce

 

[aja8888]

I have three IRA accounts. I just started with RMDs and each institution sends a letter to me right after the first of the year indicating what my RMD is for that past year and for the amount I have in the IRA.

I double check the calculations and set up a withdrawal from the account I wish to draw it from (I just take it all from one of the three accounts - simplifies things).

 

[BarbWire]

OK, well, guess I have some calculations to do.

Fortunately, on the back of a napkin, it looks like he only underpaid by about $3,000 per year.

Next question: how do I tell the IRS? By an amended return?

 

[Gill]

OK, well, guess I have some calculations to do.

Fortunately, on the back of a napkin, it looks like he only underpaid by about $3,000 per year.

Next question: how do I tell the IRS? By an amended return?[/QUOTE
Not my an opinion expressed in my professional capacity, but what I would do is absolutely nothing.
Bruce

Not an opinion expressed in my professional capacity, but what I would do is absolutely nothing.
Bruce

 

[aja8888]

OK, well, guess I have some calculations to do.

Fortunately, on the back of a napkin, it looks like he only underpaid by about $3,000 per year.

Next question: how do I tell the IRS? By an amended return?

I'm not sure.

I'm surprised the IRS computers didn't catch the under-reported amounts by computer value match up. You really can't file an amended return since he didn't draw out enough each year. Can you search for any notifications from the IRS on the insufficient withdrawals? Maybe they dinged him and he paid up?

 

[aja8888]

Not an opinion expressed in my professional capacity, but what I would do is absolutely nothing.
Bruce

Yes, it may make sense to wait to see if the IRS picks up on it and sends a bill for the amount + penalty.

 

[Bikerdude]

Not exactly your situation but this thread from Bogleheads may give you some insight.

Bogleheads • View topic - Help an elderly widow with an RMD mess

 

[walkinwood]

When you're done & have recovered, would you share your learnings here? It will be a big help.

 

[Bikerdude]

Not an opinion expressed in my professional capacity, but what I would do is absolutely nothing.
Bruce

+1. Doing nothing is also a viable option.

 

[Z3Dreamer]

IMHO it is possible that Dad did it correctly so there is nothing to do. A series of equal payments may be part of an acceptable computation called the "level amortization method". See page 7 of the following: http://www.asppa.net/Document-Vault/PDFs/TAJ/TAJ-Fall2010-rmdpdf.aspx I remember this method in the Middle Ages (probably the 80's). Looks like recent regs point to a simpler and better way for computing RMD's but as the article says, nothing wrong with the old way. Bottom line, a series of regular distributions should not set off any red flags nor cause you to do a whole bunch of work.

 

[Jerry1]

IMHO it is possible that Dad did it correctly

IMHO I think it should be assumed that Dad did it correctly. You have no reason to assume that it wasn't done correctly, you said you thought your dad had an understanding of this, so why question it now? I'm in the camp of let it go until you get a letter stating that you need to address it.

 

[iac1003]

I know that Fidelity, Vanguard, Scottrade, Schwab, Wells Fargo (and several other banks) do the calculations without asking them. I don't know for sure if it's their responsibility.

TIAA-CREF has been calculating it for my husband the past 2 years since he's been taking RMDs. I didn't know the exact withdrawal schedule. Now I can check to see if they are correct.

I think your father may have had a scheduled withdrawal set up.

I have found TIAA-CREF to be rather lackadaisical (messed up the taxes withheld for the RMD 2 years in a row). We now start in October to get that year's RMD by the end of December.


Sent from my iPhone using Early Retirement Forum

 

[scrinch]

I believe that the executor of an estate does have a legal obligation to use best efforts to identify all debts legally owed by the deceased, and to satisfy those debts with the proceeds of the estate. I have no idea how likely this is to happen, but it is possible that if you think there may be a debt owed to the IRS and you ignore it (as executor), then the problem becomes yours, not your father's.

 

[pb4uski]

But at the same time, the executor isn't obligated to scour the decedent's past for things that might have been done incorrectly that could result in a liability. The OP can assume that between his dad and TIAA-CREF that the past RMDs were computed correctly unless information comes to his attention that they were not done correctly and the fact that they didn't change isn't necessarily indicative of an error.

I'd let a sleeping dog lie and focus on the balance sheet at the date of death and subsequent transactions.