Lapsed non-spousal IRA Inheritance
My sister and I just found out we were 1/3 beneficiaries (along with our mother) of our deceased father’s IRA. At the time of our father’s death (in 1999), he had begun taking his RMD’s. Originally, were told that our mother was the sole beneficiary and took no action toward claiming any funds. As a result of our mother’s mental illness, she never took action toward managing the account either. It has essentially been abandoned up until this point. We have read that the IRS imposes huge taxes on IRA distributions that have not been taken. What is the best way to handle going forward?
Permalink Submitted by Alan Spross on Wed, 2010-06-02 03:27
Reconstruct the proper RMD amounts starting in 2000 to the present (2009 RMDs were waived). You will have to use your mother’s life expectancy for all of your RMDs because separate accounts were not created by the deadline. Then distribute the total RMDs and file Form 5329 requesting that the excess accumulation penalty be excused for “reasonable cause”. Then explain the circumstances that constitute the cause of the oversight. The IRS will probably waive the penalty, but you will have several years of taxable income to report in 2010.
Then starting in 2011, be sure to take each year’s RMD by the end of the respective year. To reconstruct the account balance for the end of each year going back to 1999, you may have to request copies of Form 5498 which reported the year end values on which the correct RMD would have been based.