Distributions from Inherited IRA
A non-spouse beneficiary (son, age 45) inherited an IRA from the original account owner (mother, age 75 when she died). Mother was taking RMD’s prior to death. The son is now taking RMD’s over his own life expectancy. If the son takes distributions from the inherited IRA in excess of the RMD amount, is he subject to the 10% early withdrawal penalty on the excess?
Rick
Permalink Submitted by Alan Spross on Sat, 2009-09-12 02:36
No. There is never an early withdrawal penalty on an inherited IRA. The 1099R is coded “4” for death distribution. Son can take out as much as he wishes to without penalty, but will of course owe ordinary income tax on the distributions.
Failure to take out the RMD however can result in a 50% excess accumulation penalty on the shortfall. The RMD for 2009 has been waived.
Permalink Submitted by Rick Spillane on Sat, 2009-09-12 18:36
Thank you. In an emergency situation then, where someone determines they absolutely have to take funds from either a regular IRA or inherited IRA, go to the inherited IRA first to at least minimize the damage (avoiding the additional 10% penalty).
Permalink Submitted by Alan Spross on Sat, 2009-09-12 19:39
Correct. In addition, since you have to take RMD money from the inherited IRA earlier and at a faster rate than an owned IRA, taking additional funds out reduces future RMDs and allows more tax deferred buildup in the owned IRA.