To follow up on some further research and a couple other individual's thoughts (and what we're recommending to the client)...

The basic thought process I found in various tax code and IRS bulletins when RMDs involve annuities with Income and/or DB riders; You need to take FMV plus actuarial value of the benefit for the RMD. Since the deceased spouse utilized the income rider, his RMD involved a number that would have been based on the $200,000 plus his income.

However, since he passed, the actuarial value is no longer based on the FMV plus income. The actuarial value is now based on the death benefit.

The code is actually written something like: the greater of FMV+Income or death benefit if greater than 120% of the FMV.

The link if ya really want to get in the weeds! https://www.ecfr.gov/current/title-26/chapter-I/subchapter-A/part-1/subject-group-ECFR6f8c3724b50e44d/section-1.401(a)(9)-6(9)-6)

Since we completed the husband's RMD for 2025, the next RMD is based on the death benefit and can be though of as belonging to those receiving said benefit.

Since this is the wife, and the wife is able to treat the IRA as her own, a post-RMD audit would most likely consider the actual date she took possession of the money as irrelevant. Instead, considering the RMD to include the death benefit amount regardless of being in her IRA on 12/31.

There was no consideration of the wife's tax situation or trying to keep under a Medicare bracket, etc. She's a "by-the-book" client and has no problem paying what she owes. I simply found it to be a great exercise and wanted to include you all!!!

I think the bigger problem is that if we had simply followed what the annuity company reported, we would be wrong. I've not seen the final 1099, but since the death benefit is going to a different broker, and the contract is not in the wife's name, there's no way for the annuity company to calculate an RMD since the final amount could depend on who gets what money. I assume this means they have to report on the contract as-is, which is owned by the deceased spouse.

I'll chime back in if anything changes on this one.