Inherited IRA where bene was improperly advised re: Options
An IRA was inherited by one nonspouse beneficiary. At the time of inheritance, the beneficiary was not given the option to take RMDs over her life expectency. The investment advisor merely advised her of the need to withdraw the entire amount within five years. We are now in year three since the death of the account holder and she has discovered she should have been given the option to RMD over her life expectancy. Can anything be done now or is she locked into withdrawing the full amount within the five year period?
Permalink Submitted by Jose Morales on Tue, 2008-09-09 20:28
This is why it’s always important for an individual to read any relevant documentation/forms themselves. Ultimately it is the individual’s responsibility to be aware of all of their options and the regulations that they must follow.
At this point the only recourse might be to seek a private letter ruling. The individual can plead their case and hope the IRS allows them to retroactively take out the single life distributions that they should have taken if they did not want to close the account within a 5 year period.
Permalink Submitted by Alan Spross on Tue, 2008-09-09 23:38
Note that there is likely relief from the 5 year rule under recent PLR 2008-11028. An explanatory link to an article by Ed is below:
http://www.financial-planning.com/asset/article/613061/saving-stretch.html
That said, you will note some doubt in the case where the IRA agreement had not been updated and required the 5 year rule with no option to elect otherwise. That seems unlikely to be the case since the 2002 IRS RMD requirements became a contract requirement.
Also, note that restoring the stretch comes at the price of paying the 50% excess accumulation penalty for the makeup years. If the beneficiary is fairly young, this is a small price to pay to preserve the tax deferral by using life expectancy. I don’t see any need to pay for another PLR here unless something is considerably different from the conditions cited in the article.