When a retirement account owner dies partway through the year, the required minimum distribution in the year of death still has to come out of the account. If the owner had reached their required beginning date but hadn’t yet withdrawn the full amount, the beneficiary is on the hook for the shortfall, and the deadline is December 31 of the year the owner died. Miss it, and the IRS imposes a 25% excise tax on the amount that should have been distributed.1Office of the Law Revision Counsel. 26 USC 4974 – Excise Tax on Certain Accumulations in Qualified Retirement Plans
Who Takes the Distribution
The named beneficiary takes the final RMD from the inherited account. If no beneficiary was designated, the estate handles it. Either way, the distribution has to happen by December 31 of the year the owner died.2Internal Revenue Service. Retirement Topics – Required Minimum Distributions (RMDs)
The money cannot be rolled over into the beneficiary’s own retirement account. It comes out, and it counts as taxable income to whoever receives it. When multiple beneficiaries are named — say, three children splitting the account equally — each one is responsible for their proportionate share. In practice, the financial institution issues separate Forms 1099-R reflecting each beneficiary’s portion.
How Much Is Owed
The final RMD is calculated as if the owner had lived the whole year. Take the account balance from December 31 of the prior year and divide it by the life expectancy factor from the IRS Uniform Lifetime Table corresponding to the age the owner would have turned in the year of death.3Internal Revenue Service. Retirement Topics – Required Minimum Distributions (RMDs) – Section: Calculating the Required Minimum Distribution If the owner’s sole beneficiary was a spouse more than 10 years younger, the Joint and Last Survivor Table applies instead and produces a smaller required distribution.4Internal Revenue Service. Retirement Plan and IRA Required Minimum Distributions FAQs
If the owner already took a partial distribution before dying, only the remaining shortfall has to come out. Suppose the calculated RMD was $12,000 and the owner had withdrawn $8,000 before death. The beneficiary is responsible for the remaining $4,000.
Whether an RMD Is Owed at All Depends on the Required Beginning Date
If the owner died before their required beginning date, no RMD is owed for the year of death.5Internal Revenue Service. Publication 590-B (2025), Distributions from Individual Retirement Arrangements (IRAs) – Section: Owner Died Before Required Beginning Date The required beginning date is April 1 of the year after the owner turned 73.
This creates a narrow window that catches families off guard. People who turn 73 can delay their very first RMD until April 1 of the following year.4Internal Revenue Service. Retirement Plan and IRA Required Minimum Distributions FAQs So if someone turned 73 in 2025 and died in January 2026, before that April 1 deadline, they died before their required beginning date. Nothing is owed for either 2025 or 2026.
Change the date of death to April 1, 2026 or later, and the picture flips. Now the owner died on or after the required beginning date. The beneficiary owes the RMD for 2025 (the year the owner turned 73) plus the RMD for 2026.5Internal Revenue Service. Publication 590-B (2025), Distributions from Individual Retirement Arrangements (IRAs) – Section: Owner Died Before Required Beginning Date A few days can be the difference between owing nothing and owing two full distributions.
Reporting and Taxes
The final RMD is taxable income in the year the beneficiary receives it, which is almost always the same year the owner died. The financial institution issues a Form 1099-R. An individual beneficiary reports the distribution on their personal Form 1040. If the account passes through an estate or trust, the fiduciary reports the income on Form 1041 and it flows through to the beneficiaries via Schedule K-1.6Internal Revenue Service. About Form 1041, US Income Tax Return for Estates and Trusts
State income tax may also apply. Most states with an income tax treat inherited retirement distributions as ordinary income. On a large final RMD, the combined federal and state hit can be substantial, so plan the withholding accordingly.
Spousal Beneficiaries: Take the Final RMD First, Then Decide
Surviving spouses have more flexibility than any other beneficiary, but the first step is always the same. Satisfy the decedent’s final RMD for the year of death, if one is owed. Only after that amount has been withdrawn can the spouse choose what to do with the remaining balance.7Internal Revenue Service. Publication 590-B (2025), Distributions from Individual Retirement Arrangements (IRAs)
After that, the main options are:
- Roll the account into the spouse’s own IRA and become the new owner. This restarts the RMD clock so the spouse won’t owe RMDs until they reach age 73. The tradeoff: withdrawals before age 59½ are generally subject to the 10% early withdrawal penalty.4Internal Revenue Service. Retirement Plan and IRA Required Minimum Distributions FAQs
- Keep the account as an inherited IRA and take distributions based on the spouse’s own life expectancy using the IRS Single Life Expectancy Table. Inherited IRA distributions are exempt from the 10% early withdrawal penalty regardless of the spouse’s age.7Internal Revenue Service. Publication 590-B (2025), Distributions from Individual Retirement Arrangements (IRAs)
- Elect to be treated as the deceased owner for RMD purposes under SECURE 2.0 Section 327. When the original owner died before their required beginning date, this election lets the spouse delay RMDs until the year the decedent would have turned 73. Distributions under this election are also not subject to the 10% early withdrawal penalty, and the spouse can still roll into their own IRA later.
A younger surviving spouse who needs access to the money before 59½ generally does better with the inherited IRA or Section 327 route. A spouse already past 59½ who doesn’t need the funds soon usually comes out ahead by rolling the account into their own IRA.
The 25% Penalty and How to Get It Waived
If the year-of-death RMD isn’t taken by December 31, the IRS imposes a 25% excise tax on the shortfall.1Office of the Law Revision Counsel. 26 USC 4974 – Excise Tax on Certain Accumulations in Qualified Retirement Plans On a $20,000 missed distribution, that’s $5,000.
The tax drops to 10% if the mistake is corrected within the correction window. That window ends at the earliest of three dates: when the IRS mails a deficiency notice, when the IRS assesses the tax, or the last day of the second tax year after the year the penalty was imposed.8eCFR. 26 CFR 54.4974-1 – Excise Tax on Accumulations in Qualified Retirement Plans In practice, that gives you roughly two years to fix the error and pay the reduced 10% penalty.
Beneficiaries report the penalty (or request a waiver) on Form 5329. If the missed RMD was due to reasonable cause, the IRS can waive the penalty entirely, and the death of the account owner generally qualifies.9Internal Revenue Service. Penalty Relief for Reasonable Cause Take the corrective distribution first, then complete Part IX of Form 5329, enter “RC” and the shortfall amount on the dotted line next to the penalty line, and attach a written explanation describing why the distribution was missed.10Internal Revenue Service. Instructions for Form 5329 The IRS reviews waiver requests case by case and will notify you if a request is denied.
Roth Accounts: No Year-of-Death RMD
Original Roth IRA owners never owe RMDs during their lifetime, and as of 2024 Roth accounts in employer plans like 401(k)s are also exempt. There’s no year-of-death RMD to worry about for a Roth account, because the owner was never required to take distributions in the first place. The distribution timeline rules that apply to the inherited account itself in the years afterward are a separate question from the final-year RMD.