Stretch IRA potential
I have an odd situation. Mother and Father of one daughter divorced in 2002. Father passes away in 2008 leaves 2 IRA’s (set up in two different states) and a number of real estate holdings (in two different states as well) to only daughter, age 12. Ex-wife is the executrix. The courts in two different states became involved because the only heir was 12. I also think it was concerning to the courts that the ex-wife was the Executrix. Because of these issues one IRA was not moved to the daughter as an inherited IRA until 2010 and the other ,from another state, not until in 2011.
I know the rule states that distributions must begin the year following the death, but the courts had this estate tied up for 2 years. Can we use the stretch strategy or must everything be taken by year five, which is 2013.
One more thing I forgot. Annual required distributions were started beginning the year each inherited IRA was set up.
Permalink Submitted by Alan - IRA critic on Tue, 2013-10-29 23:20
According to IRS PLR 2008 11028, an IRA contract that uses the usual life expectancy method as the default rule results in the beneficiary being able to preserve the life expectancy stretch even when RMDs do not start in time. However, under that PLR the beneficiary did owe the 50% penalty for the missed years. Remember that all RMDs for 2009 were waived, so there is no missed year for one of the inherited IRAs and only one (2010) for the second one. The RMD is probably very small for this young a beneficiary for 2010 so the penalty could be paid, but I also expect that the penalty would be waived if Form 5329 was filed for 2010 and the reason for the delay spelled out as the “reasonable cause” for the delay. See last page of the 5329 Inst.