Non-Spouse Inherited Roth IRA

Situation –
Client inherited Roth IRA from aunt (who was younger than 70 when she passed) who passed 6 years ago. Never selected a distribution option. After 5 year window is closed, what are the options, if any? IRA agreement indicates that if no election is made, distribution will be made over beneficiary’s lifetime. No distributions have been made to date. Can beneficiary take a catch-up distribution? Or must the entire balance be distributed? And what are the tax ramifications?



Since this Roth is now obviously over 5 years in age, it is qualified and completely tax free. The client should attempt to restore the stretch by calculating the delinquent RMD amounts for each year and distributing the total amount this year. First, he will need to determine the year end balance of each prior year so that he will know the amount of each RMD and also be able to complete a Form 5329 for each requesting the penalty waiver for reasonable cause. This is based on IRS PLR 2008-11028 with respect to making up the late RMDs. The penalty waiver was not included in that ruling, but the IRS has in practice been granting them with a properly completed 5329 for each year.

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