Beneficial IRA and no RMD’s taken since death
IRA owner was taking RMD’s and died in 2005. Three children, ages 55 to 60, were equal beneficiaries. The IRA was not split amongst the beneficiaries until 2008 and no beneficial RMD’s have ever been taken. What can they do about passed RMD’s? How must RMD’s be calculated going forward? Is there any way to preserve the stretch?
Permalink Submitted by Alan Spross on Wed, 2009-01-28 23:44
This was addressed in PLR 2008 11028 and in the article by Ed attached. I think it is worth the effort to go one step further and request that the 50% excise tax be excused. Even if the IRS refuses, they can still preserve the stretch, but it would be based on the age of the oldest beneficiary because they did not create separate accounts by the deadline. To summarize:
1) Each beneficiary should NOW take what would have been their 2006 through 2008 RMDs as well as any RMD that owner failed to take in 2005 before passing. Account balances as of the various year ends would need to be determined.
2) Each beneficiary should attach Form 5329 to their 2008 tax return explaining why the RMDs were not taken, attaching a copy of the statement showing that they have now been brought current, and requesting the penalty be waived for reasonable cause. Also see p 6 of the Inst for Form 5329.
3) Take their 2009 RMDs prior to year end 2009.
The RMD divisors for all of them would be based on the age of the oldest in 2006. That divisor would apply to 2006 and it would be reduced by 1.0 for each year thereafter.
http://www.financial-planning.com/asset/article/613061/saving-stretch.html
Permalink Submitted by mk foss on Thu, 2009-01-29 00:29
They will probably need Forms 5329 for 2006 and 2007 to waive the 50% penalties for those years as well.
The forms can be attached to a Form 1040X, but the 5329 form is a “stand alone” form and can be signed by the taxpayer (and preparer if there is one). The same explanation that will accompany the 5329 attached to the 2008 return can be attached to these forms.
Permalink Submitted by Clyde Wolf on Thu, 2009-01-29 01:23
Alan-oniras,
You suggest, “3) Take their 2009 RMDs prior to year end 2009.”
Isn’t the 2009 RMD suspended for beneficiaries?
The beneficiary may take a 2009 distribution from the IRA, but is not required to do so.
Permalink Submitted by Alan Spross on Thu, 2009-01-29 03:48
Yes, good catch. The waiver temporarily slipped my mind there. No 2009 RMD required.
I also agree with Mary Kay that 2006 and 2007 5329 forms will be needed to complete the waiver request of the excess accumulation penalty.