Early Distributions from Inherited IRA
I have a client (age 50) who inherited an IRA from his father. About $400,000. The IRA is already “in distribution.” The question is: can the client take distributions in excess of the RMD amounts and avoid the 10% penalty? Follow-up: If the answer is no, would Rule 72(t) be available to him?
Permalink Submitted by Alan Spross on Tue, 2008-09-30 22:47
Yes, he can. There is never an early withdrawal penalty on an inherited IRA. The only potential penalty is failure to distribute at least the amount of the RMD. Therefore, a 72t would not be necessary.
If he already has a 72t with his own IRAs, the inherited IRA can be used as an emergency fund for any additional amounts needed in excess of the inherited IRA RMD.
Client should also check to see if his father had any basis in his IRA. Check for Form 8606 on any of his father’s past tax returns, working backward from the year of death. He would inherit his share of any unrecovered basis and part of his distributions would then be tax free, and he would report distributions using an 8606 also.