Catch-up RMDs
I received a call from a young woman who inherited and IRA along with her brother from her father. The father passed away in 2006. The IRA was with Morgan Stanley and she was given bad information regarding RMDs. Whe was told that she didn’t have to take them until her father would have been 70.5. The account was not split between the two bene’s until 2008 when her brother took his share out of the account entirely. (She is the older of the two.) She has 12/31 balances for the account titled as her bene account for every year except 2007. To take the make up RMDs, what 2007 balance should we use? Half of the 12/31/2007? Or the full 2007?
Permalink Submitted by Alan Spross on Tue, 2012-12-04 17:38
She should use:
1) 50% of 12/31/2006 balance for 2007 RMD
2) 50% of 12/31/2007 balance for 2008 RMD
3) RMDs were waived for 2009
4) 12/31/2009 balance of her inherited IRA for 2010 etc
In any combination, they are also responsible for father’s remaining RMD for 2006, if any.
As an option, since father apparently passed prior to his required beginning date, she could opt to use the 5 year rule. Under that rule adjusted by the 2009 waiver, there were no annual RMDs required, but the entire account needs to be distributed by 12/31/2012.
Under IRS PLR 2008 11028, a beneficiary can make up missed annual life expectancy RMDs by taking them and paying the 50% excess accumulation tax for each year missed. However, it is probably worth the effort to file a 5329 for each year missed requesting that the IRS waive the 50% penalty for reasonable cause, that cause being the bad advice given by the IRA custodian who obviously used the rule for sole spousal beneficiaries in error. All distributions are taxable in the year received.