5 yr rule ?
Taking balance within 5 years. A beneficiary who is an individual may be required to take the entire account by the end of the fifth year following the year of the owner’s death. If this rule applies, no distribution is required for any year before that fifth year.
This fron IRS website .. Pub 590..
Can someone please give me a scenario where a living , breathing beneciary may BE REQUIRED to use the 5 year rule?
Permalink Submitted by Bruce Steiner on Tue, 2009-06-02 20:47
Close but not exactly the same: an IRA owner who reaches a certain age (I think age 104) takes distributions based upon about a 5-year life expectancy under the uniform table (for the joint and survivor life expectancy of the IRA owner and a person 10 years younger).
Permalink Submitted by charles lore on Tue, 2009-06-02 21:01
That may be true of a living owner age 104 but why would the IRS on its own website say that when an owner dies the beneficiary may be required to take it all out as per 5 yr rule.. Sure he can take it out in 5 yrs or 5 days but under what circumstances is 5 yrs required.., Surely the IRS could not have made a mistake on an officail document on their official site!
Permalink Submitted by Bruce Steiner on Tue, 2009-06-02 21:11
IRS Publications are pretty far down in the pecking order as far as authority is concerned. While they’re generally pretty good, they are generally not cited as authority.
It’s possible that a plan might not allow stretchouts. It’s unlikely this would be the case for an IRA, though it’s not unusual for qualified plans. That’s why Congress stepped in to permit transfers of qualified plan benefits to inherited IRAs.
Permalink Submitted by mk foss on Tue, 2009-06-02 21:17
The rule for beneficiary distributions under section 401(9)(a) when the plan participant dies before the required beginning date is life expectancy (default method) or the 5-year rule. A Roth IRA has no required beginning date so the provisions relating to a death before the required beginning date apply.
If the beneficiary of a Roth IRA fails to elect life expectancy by starting RMDs on a timely basis, they’re stuck with the 5-year rule. I think it could easily apply to a real live person who isn’t paying attention.
Permalink Submitted by Alan Spross on Tue, 2009-06-02 21:23
Note that Ed refers to IRA agreements in the attached under the “New, Easier stretches” paragraph. An IRA or employer plan agreement is NOT legally required to adopt the IRA default method of life expectancy. For IRAs, that makes those agreements sadly uncompetitive.
http://www.financial-planning.com/fp_issues/2008_7/saving-stretch613061-…
Permalink Submitted by Edward Czapor on Mon, 2009-06-22 16:10
Is it possible for an IRA agreement or qualified plan to require the 5 yr. rule for distribution if the owner died AFTER their RBD.
Permalink Submitted by Alan Spross on Tue, 2009-06-23 00:09
I have never heard of such a restriction. Prior to the 2002 RMD revisions, RMDs were based on proposals made in 1987 which were never made part of the code. There was never a connection with the 5 year rule for post RBD deaths, even in the 87 proposals, therefore there is no grandfathering issue or chance an agreement could contain such provisions by oversight. If such a provision exists it would have to be related to incorrect drafting of agreements or perhaps a misunderstanding of the regulations.