Beneficiary IRA, Death in 2003, No Disributions Taken
I have the following situation for my new client:
*$20,000 Beneficiary IRA (inherited from her mother)
*Mother died in 2003
*Mother died before her RBD
*No distributions have been taken at all
*Under the 5-year rule, the account would have needed to have been distributed by 12/31/2008
Now that I have brought this matter up to my new client, we are wondering the best way to handle this. I contacted the IRS, and they recommended 1) Liquidate account immediately, and 2) File Form 5329 and request a waiver of the 50% Excess Accumulation penalty, which may or may not be granted.
Am I missing something here? Any ideas on how I can help my client avoid the 50% penalty?
Permalink Submitted by Alan Spross on Sat, 2009-10-17 00:02
Here is another option, an article by Ed summarizing the effect of PLR 2008 11028. Note that the IRA agreement must specify that life expectancy is the default option and the 5 year rule is not required. In that case, the IRS allowed the non spouse beneficiary to make up all the life expectancy distributions and pay the excess accumulation penalty for each year. Your case involves more years to make up (5 of them), so the age of the beneficiary may be a large factor.
http://www.financial-planning.com/fp_issues/2008_7/saving-stretch613061-…
If you wanted to be real aggressive, the client might also request the penalty be excused for reasonable cause. The IRS is correct that they have been allowing most of these waivers, but may feel that they are not going to allow the waiver AND the stretch, particularly after the 5 year period has expired.
Remember that no RMD is required for 2009 if you elect withdrawing the life expectancy RMDs to date. But the 5 year period DID expire 12/31/08 and was not extended by the RMD waiver in 2009.