5 year rule for beneficiaries
Specifically, I’m concerned about how to avoid the early distribution penalty until I’m 59 1/2, more than keeping the taxes as low as possible, although that’s also important. So I wouldn’t get hit with a penalty, as long as I keep something in the account? I might want to take out larger amounts in the first couple of years, but I won’t be 59 1/2 for a couple of years yet.
Permalink Submitted by Alan Spross on Sun, 2008-10-05 02:21
Please describe your situation. Did you inherit an IRA from someone like a parent? In what year did that person pass?
Permalink Submitted by Jennifer Quinn on Sun, 2008-10-05 11:35
Hi, Alan–
I’m inheriting it from my father, who passed away this year.
Thanks–
Permalink Submitted by Al Fry on Sun, 2008-10-05 22:12
Sorry for your loss. You need to make sure your Dad’s RMD (if he was over 70 1/2) comes out THIS year, if he had not yet taken it out. That goes to you, as bene. Then you can put the balance in an inherited IRA. You can take out as much as you need without penalty. However it makes sense that you take out at least as much (first payment by 12/31/09) as needed to meet YOUR RMD each year. Then in year 5 if you need the rest of the money you can take it. But by then if you want to stretch the balance over your life expectancy (factor from Table One based on your age in 2009, minus 1 each year), you could. If you do not meet your RMD each year in years 1-4, you’ll be stuck with the 5-year deferral plan.