IRA Reporting for the Year of Death
Some IRS reporting requirements for IRAs are more challenging than others. One of the most challenging is the fair market value (FMV) statement reporting for the IRA owner’s year of death. January is rapidly approaching and with it comes the deadline for FMV statements.
Financial organizations must provide annual FMV statements to IRA owners and beneficiaries. The statement must show the IRA’s December 31 FMV for the previous year. This requirement applies to Traditional IRAs (including those holding SEP contributions), Roth IRAs, and SIMPLE IRAs. The FMV statement may be presented in any type of written format and is due to IRA owners by January 31. The FMV also must be included on the annual Form 5498, IRA Contribution Information, which is filed with the IRS by May 31.
Financial organizations must provide FMV statements each year to IRA owners—even if no IRA contributions were made for that year. If a financial organization does not issue a Form 5498 or an account statement to the IRA owner because no IRA contributions were made for the year, the FMV statement must contain a legend designating which information is being provided to the IRS on Form 5498.
FMV Reporting When IRA Owners Die
Revenue Procedure (Rev. Proc.) 89-52 addresses the reporting requirements for IRAs of deceased IRA owners. When an IRA owner dies, the financial organization must typically generate a Form 5498 and FMV statement for the decedent and for each beneficiary.
Form 5498 and the FMV statement need not be generated for any beneficiary whose share of the IRA is depleted by the end of the year of death. If the financial organization has no knowledge of the IRA owner’s death until after the deadline for filing the reports, no corrective filing is required.
Ownership
The Form 5498 and FMV statement issued for the beneficiary should use the beneficiary’s taxpayer identification number (e.g., Social Security number) and should be titled to include the name of the original IRA owner. An example of a proper title is, “Mark Smith as beneficiary of Joan Anderson.”
Valuation
A financial organization may report the FMV in one of two ways: 1) the FMV as of the decedent’s date of death, or 2) the December 31 FMV in the year of death.
Method 1:
The decedent’s Form 5498 and FMV statement should report the IRA’s FMV as of the date of the IRA owner’s death.
Each beneficiary’s Form 5498 and FMV statement should report their respective share of the IRA as of December 31 in the year of death.
Method 2:
The decedent’s Form 5498 and FMV statement should report the December 31 FMV of the decedent’s IRA in the year of death. If this method is used, the December 31 FMV of each beneficiary’s share should not be included in the decedent’s reporting. Therefore, the December 31 FMV of the decedent’s IRA must show as zero ($0).
Each beneficiary’s Form 5498 and FMV statement should reflect their respective share of the IRA as of December 31 in the year of death.
If the financial organization chooses Method 2, the organization must inform the personal representative (PR) of the IRA owner’s estate of the PR’s right to request a date-of-death valuation. The PR may need the information for the decedent’s tax return. The financial organization has 90 days to provide the date-of-death valuation to the PR following a request.
Reporting Following the Year of Death
Reporting for the years following the year of the IRA owner’s death is much less complicated. As long as any assets remain in the IRA, the financial organization will continue to generate a Form 5498 and an FMV statement to report the FMV for the beneficiary or beneficiaries. If a beneficiary removes his entire interest in the IRA before December 31, neither a Form 5498 or an FMV statement need to be generated for that reporting year.
In the Instructions for Forms 1099-R and 5498, the IRS addresses the issue of titling Form 5498 for FMV reporting if there are successor beneficiaries who inherit the IRA assets from a primary beneficiary. The instructions state that when an IRA beneficiary dies and a successor beneficiary becomes entitled to IRA assets, the form titling discussed previously will change. For titling purposes, the first beneficiary assumes the place of the deceased IRA owner and the successor beneficiary assumes the place of the original beneficiary.
EXAMPLE: Tom Olson has named Samantha Whitney as the beneficiary of his IRA. Tom dies in 2023. The titling on Samantha’s Form 5498 for 2023 will read “Samantha Whitney as beneficiary of Tom Olson.” In 2024, Samantha dies. Before she died, Samantha named a successor beneficiary, Abby Clausen, to continue her IRA distributions. The titling on Abby’s Form 5498 for 2014 will read “Abby Clausen as beneficiary of Samantha Whitney.” The final Form 5498 for Samantha (generated for the year of death) will read “Samantha Whitney as beneficiary of Tom Olson.”
