IRA beneficiary – 5 year rule
If the 5 year rule is no longer the default in the event an IRA account owner dies before his RBD, then what happens if a non-spouse IRA beneficiary does not begin taking her RMD by 12/31 of the year following the account owner’s death. Would the beneficiary be subject to the 50% penalty on the amount not withdrawn, or would the 5 year rule then apply so the beneficiary would not have to pay the penalty?
Thank you!
Permalink Submitted by Alan Spross on Thu, 2008-03-13 18:03
For an IRA, the beneficiary would still have the option to use the 5 year rule OR request that the excess accumulation penalty be excused for reasonable cause and immediately bring the life expectancy distributions up to date. What the IRS will accept as reasonable cause has been very broad, but could become more restictive at any time.
An employer plan will probably contain an election deadline such if that lifetime distributions have not commenced by the end of the year following death, the 5 year rule will then apply.