I have an acquaintance who inherited a Trad IRA in 2011. The bene did not take a an RMD in 2012. He did take 2 unscheduled distribs during the five year period, however, the balance is still at the custodian and the five year period expired 12/31/2016. What are the steps for addressing the penalty calculation?
I’m not sure if he tool more than the RMD’s for those years. I will get those numbers. Also, on an inherited IRA is the life payout based upon the age of the beneficiary if the decedent was not yet taking RMD’s? One other question. Is there ever an imposition of the 50% penalty (on the entire account balance) for not withdrawing the entire balance by the end of the fifth year?Thank you.
Almost all IRA contracts now specify the life expectancy method as the default option for beneficiary RMDs. When there is a designated beneficiary (an individual), the 5 year rule is only an option that the beneficiary may elect when the owner passed before RMDs were required. The IRS then ruled in PLR 2008 11028 that when LE is the default option, the beneficiary can make up late RMDs and continue the life expectancy stretch. The life expectancy divisor comes from Table I using the beneficiary’s age on 12/31 of the year following the year of the owner’s death and that divisor is then reduced by 1.0 for each successive year. The 50% penalty could be assessed for late RMDs for individual years, but rarely is when the beneficiary makes up the late RMDs and files Form 5329 requesting waiver of the penalty. The 5 year rule is mandatory when an estate or charity is the beneficiary and owner passes prior to the required beginning date, and the penalty could be assessed on the entire remaining balance as of the end of the 5 th year following death if the waiver request is rejected by the IRS. I assume that this decedent passed prior to the required beginning date, so there was no year of death RMD that the beneficiary might also have been required to complete.
Permalink Submitted by Alan - IRA critic on Thu, 2017-08-03 20:36
He must make up all delinquent RMDs and file Form 5329 each year to request waiver of the penalty for “reasonable cause”. He can then continue to take life expectancy RMDs from the IRA. The IRS will usually waive the penalty when the taxpayer self reports the omissions and makes up the late RMDs. It may take some research to determine the year end balance for each year from which to calculate the correct RMD. The distributions he did take are credited against the RMDs for the years he took those distributions. Were the distributions he took more than the RMD for those years?