Dad inherited son’s IRA
Son was 28 when he passed away December 2016. Mom and dad inherited his IRA 50/50. Mom cashed out her portion in 2017 and the dad established his bene IRA and plan on cashing it out in January 2018. We want to confirm that the dad will need to satisfy his bene RMD by 12/31/2017 or start the 5 year rule?
If the 5 year rule, do we need to notify the custodian or can you just cash the bene IRA out in Jan 2018 and be done with it?
Permalink Submitted by Alan - IRA critic on Wed, 2017-12-20 20:26
Unless he specifically elects the 5 year rule, his default RMD method would be life expectancy. Mom’s cashout in 2017 would result in Dad being treated as establishing a separate inherited IRA from which he could use his own life expectancy to calculate his beneficiary RMD. If he fails to take out his 2017 RMD and does not specifically elect the 5 year rule, he will have to file a Form 5329 for 2017 requesting that the IRS waive the 50% penalty for being late. The 5329 could only be filed after he took out at least the amount of the late 2017 RMD. A total distribution in Jan, 2018 would satisfy the delinquent 2017 RMD, so he could file the 5329 with his 2017 tax return requesting the waiver and stating his “reasonable cause” for being late. Or to avoid the 5329 he could simply elect the 5 year rule with the IRA custodian and let his Jan, 2018 total distribution satisfy the 5 year rule.