Inherited IRA
Client inherited IRA in 2001 from sister and never took distributions. Current custodian recently pointed out that distributions should have started in 2001 and client should liquidate IRA today and pay 50% penalty. Client is 65 years old, sister was 49 at date of death and client has not been contacted by IRS.
What advice can I offer?
Permalink Submitted by Alan - IRA critic on Wed, 2015-07-15 20:54
Interesting that custodians took 14 years to figure this out, and the IRS never did. For 2001 deaths, either the old RMD rules or the new RMD rules could be used, but the IRA agreement likely included the old 5 year default rule if no other election was made. Therefore, a full distribution of the IRA should be taken, and a Form 5329 filed for 2006 requesting a waiver of the 50% penalty. A copy of the full distribution statement should be included with the 5329 and the “reasonable cause” explanation of the delinquency should indicate that client was never made aware of the RMD requirement, but took a full distribution when this was discovered. There is a decent chance the IRS will waive the penalty. For the 2006 RMD show the account value as of year end 2006.