inherited iras

I have a client who inherited an ira from her deceased son she missed the dec 31 deadline to do the
stretch ira the ira is worth one million since she is 89 years old she might as well take it out yearly and pay the
tax and not the entire amount since that would increase her tax bracket if he died aug 2014 I am assuming
it has to be distributed by aug 2019 is this the only option for her ? Thanks Howie Lau



There is a huge difference in the beneficiary RMD depending on the age of the son at his death. If he passed on or after his required beginning date then her RMDs would be based on HIS remaining life expectancy, but she would have had to complete his year of death RMD had he not completed it. Probably much more likely, he passed prior to his RBD and there would have been no 2014 year of death RMD, but then her beneficiary RMDs would be based on her remaining life expectancy based on her age on 12/31/2015. With either situation based on his age at DOD, she can make up the RMDs that were missed and file a 5329 for each year the RMD was late requesting waiver of the penalty for “reasonable cause”. To determine if she must drain the IRA by 12/31/2019 or not, please confirm her age on 12/31/2016 and if son passed before his RBD or after.



moms age 89 on 12/31/2016 son passed before rmd required he was age 63



Mom’s RMDs would begin in 2015 based on age 88 on 12/31/2015. Her divisor for 2015 is 6.3, then reduced by 1.0 for each year thereafter resulting in the IRA being fully distributed in 2021. If she wants to extend it to then, she could make up the late RMDs for 2015 and 2016 and file a 5329 requesting the penalty waiver. She would therefore have to take out 3 RMDs this year. Another choice would be to elect the 5 year rule in which the IRA would have to be drained by 12/31/2019. That would eliminate the 5329 filings and she could simply distribute the IRA equally over 3 years to control the taxes. The amount of the IRA, her spending needs and current health could also play a factor in deciding between these two options.



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