Inherited IRA – missed distribution
What is the best advice to give to someone who did not make a required distribution from an inherited IRA? I have been introduced to two sisters that inherited an IRA from their mother in 2006. Sister A has not taken any distributions to date. Sister B needed to take (and has taken) a distribution in 2008 that exceeds her combined RMD for 07 and 08.
Thanks.
Permalink Submitted by Timothy Salzler on Fri, 2008-08-08 16:25
I should have added – The mom was post 70 1/2 when she died.
Permalink Submitted by BruceM on Fri, 2008-08-08 17:39
The important question is whether mom died prior to the required beginning date or after.
If prior, then the sisters have the option of lifetime withdrawals, with the first withdrawal coming out not later than 12/31 of the year following death, which should be, from what you’ve described, 12/31/2007. If sisters missed this, they could choose the 5 year option OR they could withdraw the 2007 RMD (as it sounds like sister B already has done) along with the 2008 RMD by the end of this year, and then attach a letter to their 2008 return asking forgiveness from the IRS to avoid the 50% underwithdrawal penalty, which I understand the IRS will generally do for late first withdrawals.
If mom died after RBD then the sisters lose the 5 year option and must do life withdrawals or faster.
BruceM
Permalink Submitted by Bruce Steiner on Fri, 2008-08-08 22:36
See PLR 200811028.
What is the relevance of whether the IRA owner had reached her required beginning date?
Permalink Submitted by Alan Spross on Sat, 2008-08-09 00:11
Bruce (both),
The PLR addressed a decedent prior to RBD, although in the ruling the annual excess accumulation penalty needed to be paid to preserve the stretch.
Since post RBD deaths default to life expectancy with the 5 year rule inapplicable, the beneficiary can probably just catch up past RMDs and request the penalty be excused for reasonable cause. I don’t know as the PLR affects the post RBD death or not.
Following is link to Ed’s take on this PLR:
http://www.financial-planning.com/asset/article/613061/saving-stretch.html
Note: I think as Bruce M indicated, it is possible to pass after age 70.5 and still pre date the actual RBD.