IRA minimum distribution
My brokerage rep phoned me regarding the IRA I inherited from my father 4 years ago telling me that I need to start making minimum distributions from the IRA or I will get penalized. I am 51 years old. I am under the understanding that these distributions are required when you are 70 or older. It seems to me that I would not have to start making minimum distributions until I’m 70. Could someone please counsel me on the proper action to take.
Thank you!
Permalink Submitted by Alan Spross on Thu, 2007-09-20 23:28
The age 70.5 starting date for RMDs applies only to IRAs that you own, not to inherited IRA accounts. This account should now be registered as a beneficiary IRA showing both your name and your father’s name in the registration. What was his month and year of birth and death?
Permalink Submitted by Wally Wogeez on Fri, 2007-09-21 12:54
Thank you for the reply!…. My father was born 07-1925 and he passed away 09-2003. You are correct about the name on the account. I am listed as the beneficiary.
My rep also said I might be liable for a 50% minimum distribution penalty. I feel the brokeage Co should take the penalty hit if my professional advisor, HA, HA neglected setting up minimum distribution.
Thanks again for the counsel!
Permalink Submitted by Denise Appleby on Fri, 2007-09-21 17:20
Which means your father died after the required beginning date ( defined here http://www.retirementdictionary.com/Required-beginning-date.htm) . Therefore, you needed to begin distributions by December 31 of 2004. You owe the IRS an excess accumulation penalty (defined here http://www.retirementdictionary.com/Excess-accumulation-penalty.htm) of 50% for every RMD amount that you should have distributed and did not distribute ( 2004, 2005 and 2006).
See page 54 of IRS publication 590 at http://www.irs.gov/pub/irs-pdf/p590.pdf
If you can demonstrate to the IRS that you failed to take the RMD amounts due to a reasonable cause, they may waive the excess accumulation penalty .
The terms and the conditions of the IRA document usually place the responsibility for taking RMD amounts on the IRA owner and the beneficiary. Because you are required to make a tax-withholding election for your distributions, custodians will usually not process distributions, unless they have your written instructions to do so.
Permalink Submitted by Wally Wogeez on Sat, 2007-09-22 01:44
Thank you for the response, Denise! As I suspected, it was all my fault, ha! At least I can laugh about it. I’ll plead my case to the IRA.gov folks and hopefully they will grant me immunity on this one.
Thank you for the counsel. I sure hope they are more friendly than the tax assessor.gov folks!
Permalink Submitted by Sylvia Bell on Thu, 2007-10-25 18:46
I thought there was an option to take the full amount of an inherited IRA as a distribution within 5 years of the owner’s death, instead of taking the annual RMDs.
Permalink Submitted by Denise Appleby on Thu, 2007-10-25 18:56
Only if the IRA owner died before the [url=http://www.retirementdictionary.com/Required-beginning-date.htm%5DRBD%5B/url%5D
Permalink Submitted by Al Fry on Thu, 2007-10-25 18:59
True, but only IF the IRA owner died BEFORE his/her RBD. Personally, I don’t this it is ever wise to make that election (unless by default). For IRAs prior to the RBD as well as NQ annuities, I think the bene should always opt for the lifetime stretch. Then if they want the balance in 5 yearsd they can take it. Time and time again we see people that go for the 5-year deal, then change their minds over the next four years. Our answer: “Sorry, too late”.
Permalink Submitted by Wally Wogeez on Mon, 2007-10-29 22:20
Thanks everybody. It seems like I stimulated some creative thinking. Here’s the deal…..I took the safe route, and probably not the wise route, and made up for the the minumum distributions for the past couple years in good faith of the possible oversight. Just wanted to make sure and avoid any issues to come up down the road and then possibly really get packed.
Thanks again folks for the counsel,
Tom