RMD and only illiquid assets in IRA

Submitted by Jay Wiedwald on Sun, 2024-08-18 15:55

There have been many posts here on the topic of all assets in an IRA being illiquid, and all responses basically say, “DON’T LET IT HAPPEN!”

But it did happen to my 92-y-o sister-in-law (IRA inherited from spouse), and as of this year she has totally depleted all liquid IRA assets and is trapped in a RE investment that she has been told she can neither cash out nor transfer ownership until 2053. I believe (not sure yet) that the investment manager is also the custodian.

So now that it has happened, what options does she have?

 



Submitted by Alan - IRA critic on Sun, 2024-08-18 18:17

Depending on additional details, she may have legal recourse against the manager or others that put her in this position. I assume that no change of ownership includes no distribution of the assets out of the IRA (owned by the IRA) to a taxable account owned by her.

She should have assumed ownership of this IRA long before this, as that would have reduced her RMD and perhaps not drained the liquid investments. This can still be done this year to reduce the 2024 RMD on which the penalty will be based. The penalty has now been reduced to 25% from 50%, but I know of no way to avoid the penalty if the distribution is not possible.

Submitted by Jay Wiedwald on Sun, 2024-08-18 19:30

Thanks! Can you suggest the type of professional that is most likely qualified to move forward? E. g. CPA, tax attorney, real estate attorney, etc.?

 

Submitted by Alan - IRA critic on Mon, 2024-08-19 11:14

The tax filing is very easy. Any tax preparer should be able to file the 4 lines needed on Form 5329 to pay the excise tax. Electing ownership (if this is still an inherited IRA) just requires notifying the IRA custodian. Actually, the default rules state that if she did not take her full beneficiary RMD in any prior year, she has already defaulted to ownership status, and just needs to have the balance transferred to a properly titled owned IRA.

The request of legal responsibility for this situation is much trickier and very costly. Is the balance at least 200k to justify seeking legal advice, as this could be a longshot not worth the time and expense. If there is a decent case, she might seek advice from a tax attorney.

Add new comment

Log in or register to post comments