Non Spousal Inherited IRA – 7 years later – No RMDs taken
I have read through a number of similar posts. I am aware of (PLR 200811028), however, the client was not aware of the account(s) existence nor has she yet moved the money.
My client was just informed that she is the beneficiary of a DB pension plan, and an IPA (which can be converted to a beneficial IRA). The problem is the owner of the accounts passed 7 years ago. The company just recently located the beneficiary. (Documented by letters). My client is named on the papers as the beneficiary. No money has been moved yet. The owner was age 57 when he passed and had not taken any distributions from the accounts.
Client is prepared to do a Trustee – Trustee transfer of the monies from the IPA ?) to a properly titled beneficial IRA.
Several questions arise.
Can the lump sum distribution from the DB plan be converted to a beneficial IRA?
Having just been made aware of the accounts, and not having moved the monies as of yet, is she responsible for taking RMDs from the date of transfer of the funds (when she receives possession), or the year following the death of the owner?
The owner having not yet reached RBD, would there be an RMD due in the year of his death, and therefore the responsibility of the beneficiary?
As she was named on the beneficiary forms, can she maintain the stretch and use her age for RMD calculations; again is that date of receipt of monies or based on date of death of the owner?
Depending on the answers to the above, would she file one form 5329 with a letter of explanation and documentation; or separate forms (etc.) for the years since the owners passing?
If past RMDs are due, I would think that (assuming stretch applies) she would calculate RMDs based on her age in the year the RMDs were due, not in the year actually taken (this year). Is that correct?
In what tax year(s) would my client show receipt of past due (if any) RMDs? I would think in the tax year the RMDs are taken, regardless of when they are due.
Depending on the answers to the above, how would the 50% penalty be addressed and paid, if due?
There are a lot of wrinkles here.
Thank you, in advance, for your guidance.
Permalink Submitted by Alan - IRA critic on Wed, 2013-05-29 20:56
Notice 2007-7, p 7 (http://benefitslink.com/src/irs/notice2007-7.pdf is more applicable in this case. Under this Notice, life expectancy RMDs in all cases only applies if the direct rollover is completed before the end of the year following plan owner’s death. Since that did not happen here, the RMD provisions in the two plans govern the options. If the plan requires the 5 year rule to apply for deaths prior to the RBD, then the plan should not be offering to do a direct rollover since the 5 years has expired. Offering any direct rollover indicates that life expectancy is the default rule under these plans, and client could be able to receive a direct rollover of amounts in excess of all the missed RMDs. The plan would distribute the missed RMDs to the client and those RMDs would be taxable this year. Form 5329 for each year should be filed requesting waiver of the penalty. The missed RMDs would start the year following the year of death and run to the present except for the 2009 waiver year. The plan would have to provide these numbers and might list the amount for each year in their distribution. The RMD would be based on client’s age for each of those years and the prior year end balance as provided by the plan, but all would be taxable in the year received. In this situation, no penalty should be paid unless the waiver requests with Form 5329 is denied and that is unlikely given the circumstances. But the first order of business is to get the plan information to see if a stretch is even possible.
Permalink Submitted by Bob Modesti on Mon, 2013-06-03 17:24
Can the plan transfer the total amount (Direct Trustee to Trustee) to the new beneficial IRA, and then have the client take the missed RMD’s; or is it crucial that the RMD’s be issued in a separate distribution to the beneficiary with the balance of the funds transferred Trustee to Trustee to the new Beneficial IRA? Thanks again.
Permalink Submitted by Alan - IRA critic on Mon, 2013-06-03 18:37
No, the plan cannot transfer RMD amounts for the delinquent years to the IRA, although sometimes this happens due to plan error. As far as I know, there is no authority for the plan to waive plan provisions as a result of the beneficiary not being notified of the death benefit despite reasonable efforts. As indicated earlier, if the plan provisions required the 5 year rule for deaths before the RBD, it should not offer any direct rollover since the entire balance had to be distributed earlier. If the plan provided for life expectancy RMDs, there might have been a requirement for the beneficiary to elect that option by the end of the second year. It is not possible to know what options the beneficiary should have without knowing the actual plan provisions and the position the plan is taking as a result of the unusual delay.