Beneficiary Withdrawl – Tax – Stretch
I received this question from a CPA
Beneficiary received an IRA form deceased relative.
Bene took out $25k. $10k used for first time home purchase.
1099 R had total tax distribution but no taxable amount.
Questions:
1. What amount of $25k will client owe in taxes? What about remaining proceeds in IRA?
2. With the $25k distribtuion, can beneficiary perform Stretch IRA on remaining proceeds?
Thanks
Jim
Permalink Submitted by Alan Spross on Thu, 2010-03-04 19:16
Jim,
Assuming a TIRA and not a Roth IRA, the entire amount would be taxable UNLESS he inherited some basis from the decedent. If so, he could file an 8606 and apply the remaining basis pro rata to his distribution. To determine if there was any basis, he should contact the executor or other person who could check prior tax returns of the decedent. If no 8606 shows up, either there was no basis, OR decedent failed to apply it.
Assuming this was inherited from a non spouse, RMDs must begin in the year following death of the owner, except that 2009 RMDs were waived. Any amount taken out in 2010 would be applied to the 2010 RMD, and may well more than satisfy it. But I cannot tell from the info provided what his RMDs should be. For example, was he named directly or inherit through the estate, what year and at what age did the owner pass?
There are some letter rulings that allow the stretch even if the beneficiary failed to start lifetime distributions on time.