neglected spousal IRA inheritance
My father died in 1999 and left my mother (23 years younger) as the beneficiary of his IRA. He had
already begun taking distributions. She has never taken ownership of
the account, rolled it over, or taken any distributions. I have just
become her power of attorney after discovering a grim financial
situation due to neglect and mismanagement.
I am aware that she will face severe tax penalites. Is it best to
roll the IRA over into her name at this point? Do I contact the
investment house about this? Should I contact the IRS? Does this
require a tax attorney?
Any suggestions you have will be greatly appreciated, as I am unsure
of how to proceed.
Permalink Submitted by Alan Spross on Thu, 2010-03-11 01:52
More than likely, she would only have had to take the RMD for your father for 1999 and only if he did not take his 1999 RMD before passing.
There is a default rule that if your mother fails to take an RMD required as a sole spousal beneficiary of the IRA, she is deemed to have assumed ownership of that IRA (ref Pub 590, bottom of p 18). This means that starting in 2000 she is deemed to be the owner of the IRA, and as owner she would not be required to take an RMD until April 1st of the year following the year she turned 70.5. If she is 23 years younger, perhaps that year has not yet arrived. If it has arrived, she would only be penalized for years in which she should have taken an RMD as owner. For 2009, RMDs were waived.
So, did she reach 70.5 in 2008 or earlier? If not, no problem.
Please advise if she owes RMDs as owner, and I will address how to deal with that.
Permalink Submitted by Shira Moffatt on Thu, 2010-03-11 15:32
Thank you for your response. She is just 60 now. So, has too much time passsed to take his RMD for 1999? Will the IRS automatically take the 50% penalty at the time of withdrawal?
Permalink Submitted by Alan Spross on Thu, 2010-03-11 18:05
Under the circumstances, she should just forget about the 1999 situation. There is probably no way to correctly calculate his 1999 RMD anyway unless extensive records were kept. His RMD would have been lowered with a sole spouse beneficiary 23 years younger and I think that option did exist prior to 2001, but there are other complications as well.
RMD rules were completely revamped with a 2001 proposal that was adopted in 2002. Prior to that, IRA RMDs were addressed only by a set of proposals adopted in 1987 which were complex and loosely enforced. The IRA owner was supposed to file an election with his IRA custodian at 70.5 electing or opting out of the life expectancy method. Some IRA agreements contained default provisions in the event no election was made. Under all these circumstances I doubt if it is even possible to determine exactly what his 1999 RMD should have been unless she has extensive documentation in the IRA file.
The chances of the IRS inquiring now or in the future about a pre 2002 RMD of a deceased IRA owner is slim and nil, although I cannot tell you if there is any statute of limitations on this issue.
At this point I would formally re title the IRA in her name since she is now beyond the age of early distribution penalties. There are no RMDs until 70.5 since the defaulted ownership rules stated above still apply even though she inherited the IRA prior to the current rules. You will see that she either has a revised IRA agreement or several dozen updates were sent out to bring the account into conformance with the 2002 mandated rules. Also, be sure that the correct beneficiary of your mother’s IRA is listed on the account.