stretch ira and missed rmds
I was recently contacted by a client who was named as sole beneficiary on his father’s ira. the father passed away in 2009 and was 80 years old. My client was just contacted by the ira custodian informing him of the account last week. My client had no idea the account existed.
First question, since he is a designated beneficiary I assume he can still create a stretch ira? If so, can he still use his life expectancy? I assume so, but want to make sure there isn’t a rule that disallows any of the above since so much time has passed. I assume he should also take the missed RMDs immediately correct? Last, what is the likelihood of the IRS waiving the 50% penalty on missed RMDs? Thank you.
Permalink Submitted by Alan - IRA critic on Mon, 2015-09-21 20:22
You are correct, and the last question is the key. Since father passed after the RBD, life expectancy is the default RMD method. All the delinquent RMDs 2010-2014 should be calculated and distributed. Since this is a self reported and corrected delinquency, the IRS will probably waive the 50% penalty. A 5329 should be filed for each year and for 2012-2014 a 1040X filed with that year’s 5329 requesting that the penalty be waived for reasonable cause. If there is documentation of late notice to client, that will probably sew up the waiver. He should not pay any penalties and most likely will never hear from the IRS which means they accepted the requests. There is no year of death RMD to be concerned with since RMDs were waived by Congress for 2009.
Permalink Submitted by Robert Ervolina on Tue, 2015-09-22 21:24
Thank you. Just so I understand. If a client fails to establish an inheirted IRA by December of the year following death and deceased is post 70.5 the beneficiary cannot use his life expectancy, rather it is the life expectancy of the deceased?
Permalink Submitted by Alan - IRA critic on Tue, 2015-09-22 21:53