Beneficiary IRA
If a child inherits an IRA from a parent and the parent was taking RMD, what are the options for a beneficiary IRA? Can the 5 year rule be used? Can the child take RMD over his lifetime? Or does he have to withdraw based on parent’s life expectancy?
Permalink Submitted by Denise Appleby on Mon, 2008-02-18 21:51
Child’s life expectancy.
See http://www.retirementdictionary.com/qr_benoptions.htm
Permalink Submitted by Barbara Steinberg on Tue, 2008-02-19 01:22
Thanks for the info Denise. One more question: is there any penalty for taking the withdrawals earlier (and paying the tax due)?
Permalink Submitted by Alan Spross on Tue, 2008-02-19 02:15
No penalty. Any amount in excess of the RMD can be distributed in any year including a full lump sum.
Of course, the child would lose many years of tax deferral since his RMD is likely a small % of the balance. He should also check if there is any after tax basis in the inherited IRA with whoever handled the parent’s taxes.