Inherited IRA RMD Question (Pre 2020 death)

Submitted by Jacob Enderes on Mon, 2024-10-21 11:29

Hello –

My sister passed away at age 47 in October 2019 and I (Age 39 at the time) inherited her IRA.  I did not interpret the Inherited IRA Rules correctly and have not taken an RMD.  How do I catch up?  I believe my best choice is to use the IRS Non-spouse distribution tables if I want to defer as long as possible, since the death occurred prior to the SECURE act of 2019 going into effect.  Do I need to empty the account within 10 years or is that rule only for post-SECURE act inheritances (I believe it wouldn’t apply to me)? For calculating the missed RMDs, do I use the account balance on December 31, 2023 or do I use the account balance from the end of that year (i.e. 12/31/2019 for the 2020 RMD, 12/31/2020 for the 2021 RMD, etc.)? Is the following correct?

Year 2020 (First year after death) Account balance (again, is this from 2023 or 2019)/45.6 (I would have been 40 in 2020 – this is the life expectancy factor from the IRS site (https://www.irs.gov/publications/p590b#en_US_2023_publink100089977)

Year 2021 – Account balance (2023 or 2020?)/44.8

Year 2022 – Account balance (2023 or 2021?)/43.8

Year 2023 – Account balance (2023 or 2022?/42.9

Year 2024 – Account balance (12/31/2023)/41.9

I understand that I will also have to pay penalties on the 2020, 2021, 2022, and 2023 distributions, but those can be paid out of pocket (no need to take extra distributions).  I also understand I will need to file IRS Form 5329, and I can request a waiver of the penalties in writing.  I would very much appreciate if someone could answer this, thank you!



Submitted by Alan - IRA critic on Mon, 2024-10-21 13:43

You are correct that the Secure Act does not apply. 2020 RMDs were waived, so you need to make up the 2021-2023 missed beneficiary RMDs and file a 5329 for each year to request that the penalty be waived for reasonable cause. The IRS will probably approve the waiver requests, but the sooner you complete the 5329 forms and submit them, the better.

The 2021 beneficiary RMD is based on the 12/31/2020 balance, 2022 on the 12/31/2021 balance etc. The 2021 RMD uses the old single life table divisor for your age in 2020 reduced by 1.0 for 2021 (divisor 42.6). For 2022 when new tables were introduced, you need to reset the divisors for what they would have been under the new table. The new table divisor for age 40 in 2020 is 45.7. so subtract 2.0 from that divisor for your 2022 RMD, subtract 3.0 for your 2023 RMD, and 4.0 for your 2024 RMD etc.

You also have the option to elect the 5 year rule, which only requires you to take a total distribution by the end of 2025 (2020 does not count). This only makes sense if the balance is small enough that it is not worth stretching and you want to avoid filing those 5329 forms with 1040X for 2021-2023.

 

Submitted by Jacob Enderes on Mon, 2024-10-21 14:14

This is incredibly helpful! So since 2020 RMDs were waived, I just need to take:
2021 – Account Balance 12-31-2020/42.6

2022 – Account Balance 12-31-2021/43.7

2023 – Account Balance 12-31-2022/42.7

2024- Account Balance 12-31-2023/41.7

And I may only have to pay penalties on 3 years – 2021-23.

Thank you so much!!!

 

Submitted by Alan - IRA critic on Mon, 2024-10-21 15:24

Yes, correct. The IRS will probably waive the penalties if you file the 5329 forms correctly. Only 4 lines but they are tricky, so read the instructions for Form 5329. Only file these after you have made up the missed RMDs.

Submitted by JAMES VOLPE on Sat, 2024-10-26 13:57

Should Jacob make (3) separate RMD distributions in 2024? Then make a 4th RMD distribution late in 2024 for 2024?

After filing the 5329’s requesting waiver of the penalties how does Jacob pay the tax associated with those late RMD’s?

Does the IRS process the 5329’s and send tax notices?

Submitted by Susan Radke-Sproull on Sun, 2024-11-24 18:33

My brother is in the same situation as the poster. The IRS instructions say: “If you are filing Form 5329 for a prior year, you must use the prior year’s version of the form. If you don’t have any other changes and haven’t previously filed a federal income tax return for the prior year, file the prior year’s version of Form 5329 by itself (discussed earlier). If you have other changes, file Form 5329 for the prior year with Form 1040-X, Amended U.S. Individual Income Tax Return.” SO, if I understand this correctly, he takes the full missed + current year RMD in 2024. But he files each Form 5329, appropriate for the year, by itself or with that year’s Form 1040-X if appropriate, not with the 2024 return, yes? 

Add new comment

Log in or register to post comments