5-Year Rule
We have a client with a parent who passed away and make sure we aren’t missing any details of an inherited IRA and the withdrawal strategy.
The client needs a lump sum to pay for some final death expenses.
Our plan is to:
1) Move to inherited IRA
2) Pull around 15-25% out per year
3) Fully drain the account within the 5-year timeframe
Are there any particulars that we need to be aware of when using the 5-year rule? What’s the penalty additionally if they don’t empty it? Is there any issue with spreading it fairly evenly across the 5 years as long as it gets emptied?
Thanks for any help!
Andrew
Permalink Submitted by Alan - IRA critic on Sat, 2018-04-07 00:41
Need to know the age of parent at the time of death and what or who the named beneficiaries are.
Permalink Submitted by Andrew Rogers on Mon, 2018-04-09 13:53
She was 80 at death and our client was the sole beneficiary listed.
Permalink Submitted by Alan - IRA critic on Mon, 2018-04-09 17:01
Parent passed after the RBD and therefore the 5 year rule does not apply. The client must take life expectancy RMDs using client’s age at the end of the year following the year of parent’s death. The client must also distribute the year of death RMD of the parent if the parent did not complete the RMD before passing. Since client wants to take out more than the RMD, that is no problem because the client can take out as much as desired, just cannot take out less than the RMD amount. If client wants to drain the inherited IRA in 5 years, that is no problem, but client does not have to.