Forgotten Roth IRA
A client was recently notified by Fidelity that her father, who died in 2012, still had a Roth IRA with them. She is a named beneficiary. Fidelity, apparently, was notified of the father’s death, but the daughter says she didn’t know the account existed and hence never filed a claim for it. Ordinarily the account should have been rolled over to an inherited Roth IRA, and the daughter should have taken at the very least the first RMD by December 31, 2013 based on her age 49 that year.
Since she didn’t, and it’s 5 RMD years later, is she subject to taxes and/or penalties? If she is, what actions should she now take to avoid these? I appreciate your help with this.
Permalink Submitted by Alan - IRA critic on Sat, 2017-10-07 20:09
If the Roth is large enough and she wants to preserve her life expectancy stretch, she could make up the 5 years of RMDs and file Form 5329 for each year to request that the penalty be waived. She has an excellent “reasonable cause” for being late, so chances are very good the IRS would waive the 50% penalty for each year. She would have to determine the year end value for 5 years in order to determine what those RMDs would have been to complete each 5329. On the other hand, if the Roth is small and she wants most of the money now, she can just use the 5 year rule and drain the account before year end and not file any 5329 forms. Either way, since it is now clear that at least 5 years has passed since her father first contributed, the Roth is qualified and all distributions are tax free.