Inherited IRA – no distribution taken to dater

Submitted by Sandra Owens on Thu, 2017-03-02 18:25

The client, age 60 died in 2007 leaving her son (22) as sole beneficiary. Son opened Inherited IRA in 2008. To date he has not taken any distributions. Do you calculate the first distribution missed on the 12/31/2008 balance and would it be based on his age at the time of her death in 2007 or his age in 2008?



Submitted by Alan - IRA critic on Thu, 2017-03-02 19:53

First RMD for 2008 would be based on 12/31/2007 balance using son’s age on 12/31/2008. RMDs were waived for 2009. Does he plan to make up all the late RMDs and file a 5329 for each year requesting the penalty be waived?

Submitted by Sandra Owens on Thu, 2017-03-02 20:33

Yes, he is requesting a distribution of the whole amount (except for 2009) and will request the penalties waived.  I have been tasked to calculate the distributions and provide him with the figures.  I have copies of all year-end statements.  I wanted to confirm the following when calculating:Account owners age at death:  60Beneficiary age on 12/31 of the year following the owners death:  23  Beneficiary age on 12/31 of the distribution year:  This is where I get confused.  Would I report his age as 22 yrs for 2007 distribution, 23 yrs for 2008 distribution, etc?  Or would I report his age as 32 yrs.  That is his age now – when he is actually taking the distributions (albeit late).  

Submitted by Alan - IRA critic on Thu, 2017-03-02 22:11

  • You plan on relying on PLR 2008-11028, in which the IRS allowed the beneficiary to restore the life expectancy stretch option because that was the default rule in the IRA agreement. Previously, it was believed that not having acted within the first couple years was deemed to have elected the 5 year rule. However, in this PLR the beneficiary also had to pay the 50% penalty for each year that was late. Since that time, I believe that the IRS has accepted a penalty waiver with Form 5329 as well, at least no one is reporting that the 5329 has been denied, but this is certainly possible. A separate 5329 is needed for each year with a penalty waiver, therefore 2008-2016 excluding 2009. They can be sent in together with a note of explanation. In some cases, the IRS may ask for a 1040X for each year, although there is no reason to have to do a 1040 X.
  • Specifics:  There is no 2007 distribution, 12/31/2007 value used for 2008 RMD age 23 divisor 60.1.// 2009 RMD waived// 2010 RMD use 12/31/2009 value divisor 58.1// 2011 RMD use year end 2010 value divisor 57.1, etc.
  • Per above, the table divisor is only used for 2008, other RMDs after that just reduce the divisor by 1.0. All these distributions will be taxable this year.

Submitted by Sandra Owens on Fri, 2017-03-03 21:48

Excellent – exactly what I needed to know to proceed.  Thank you for this information.

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