RMD of Inherited IRA
My father-in-law, Ken, passed away 10-02-2001
his birth date was 03-18-1930
my wife Alice inherited her 1/3rd of the IRA July 2002 as IRA FBO Alice Beneficiary of Ken Miller
Her share was approxiamately $12K, now worth approxiamately $31K
When she received it, I asked the trust company settling the estate if Ken started his RMD withdrawals – they said he did not need to take any RMD since he was still working. This was not his company IRA, even though he always worked for the same company all his life. I also asked if my wife, Alice, needed to start withdrawals since her father was past age 70.5 years of age. They said no. My accountant agreed with everything I was told.
Alice’s sister & brother were instructed to withdrawal an amount based on some figure, then add 1 each year.???
My book keeper said this is the 5th year after his passing – Alice will need to withdrawal the entire amount, declare it as income and pay income taxes on the entire amount.
Can this amount be rolled into her ROTH IRA? (after declaring the income and paying taxes)
Can she stretch the IRA?
Was Alice required to take RMD’s, at her age, each year since inheritance?
Will she be penalized 50% for not taking withdrawals?
Please help me clear up the details.
Thanks,
Karl
Permalink Submitted by Alan Spross on Mon, 2007-07-30 05:05
There has been no lack of misinformation dished out by the trust company. The “still working” RMD exception does not apply to IRA accounts, and the non spouse beneficiaries needed to start their RMDs in the year following death after making up for the year 2000 and 2001 when Ken did not take his own RMD.
Ken passed after his required beginning date, and therefore the 5 year rule does not apply. If the separate accounts were established no later than 12/31/02, each beneficiary was entitled to use their own remaining life expectancy starting in the year 2002. If the separate accounts were not set up by 12/31/02, the life expectancy of the oldest of the 3 beneficiaries would apply to each of them.
Ken also had an RMD requirement for 2000 and 2001 that must be taken based on the tables in force at that time, which was changed with the new 2002 RMD requirements released by the IRS. It sounds like there were no RMDs taken. In no event can any of the RMD be rolled over or converted to Roth IRAs.
I suggest that your wife make up her share of the RMDs for 2000 through 2007 and request that the IRS excuse the 50% excess accumulation penalty. This is done using Form 5329 with an explanatory letter including evidence that she has corrected the shortfall as soon as she realized what had happened. She could include the statements showing the amount distributed now in 2007, which will be fully taxable this year. But the 5329 should be filed for 2006 and can be done without a full amended 2006 return. The IRS has been excusing the 50% penalties in cases like this.
Starting in 2002, she should use Table I in IRS Pub 590, p 86. Taking her age attained in that year she would divide her share of the account balance on 12/31/01 by the table divisor. For each year after that she would use the prior year end balance and the original divisor reduced by 1.0. For example, if she was 48, the divisor would be 36, then 35 the next year etc. This should allow her to get back on track and still preserve the bulk of the IRA balance for 30+ years.