RMD – inherited IRA -five year rule
Taxpayer inherits IRA. Does not commence IRA distribution in 2006 – year following date of death. The five year rule now applies. When is the 5th year? is it year 2010? or because year 2009 was suspended is the last year now 2011?
Also is it possible to restore the life expectancy method? It seems that there are some limited cases where the first distribution year was missed but that the life expectancy rule is still applied?
Thanks
Jim M
Permalink Submitted by Alan Spross on Wed, 2010-08-04 19:31
Jim,
There is still a choice here:
1) Assuming IRA owner passed prior to RBD in 2005, the 5 year rule would skip 2009, and the account would have to be distributed by 12/31/2011.
2) Yes, life expectancy can still be restored providing circumstances are essentially the same as those in PLR 2008 11028 discussed in the following article by Ed:
http://www.financial-planning.com/fp_issues/2008_7/saving-stretch-613061…
Note that saving the stretch required payment of the 50% excess accumulation penalty plus IRS interest levied for the retroactive years. If beneficiary really wants to be aggressive, they might also request waiver of the penalty, but the result of that is tough to predict. Again, there was no RMD for 2009, so in this case taxpayer would be have 3 reconstructed RMDs plus the 2010 RMD taxable in 2010 along with the penalty for 06 through 08.
Permalink Submitted by Sherry Mills on Sat, 2017-09-16 16:46
Mother passed in March 2016. Broker put me in five year but I wanted stretch. It is now September 2017. Genworh has denied reversing the five year plan. I wanted to use a 1035 to leave this company but now they say I can only stay under their umbrella.
Permalink Submitted by Alan - IRA critic on Sat, 2017-09-16 19:37
While the IRS approved 1035 exchanges for annuity beneficiaries in a 2013 PLR, even if Genworth agreed to the transfer and did not require you to get your own PLR, the distribution method would not change. Therefore, the issue is why your broker and the company denied you the LE stretch if the company otherwise offered it. Here is an article on the PLR: https://www.kitces.com/blog/irs-opens-door-in-plr-201330016-for-1035-exchange-by-beneficiary-of-fixed-and-variable-inherited-annuities/
Permalink Submitted by Sherry Mills on Tue, 2017-09-26 11:00
MIssed RMD for the year my mother died (2016) and was thrown into a five year plan for a Genworth annunity account (not an IRA). Question, any way to reverse this and change to a stretch. My mother’s broker told me a five year was only choice which turned out to be incorrect.Thanks
Permalink Submitted by Alan - IRA critic on Tue, 2017-09-26 17:56
Genworth may address this in their contract, or this could be a requirement not written into the contract. Either way, about all you can do is explain what happened to Genworth and suggest you will file a complaint about the agent if this cannot be resolved. Genworth may value their relationship with this agent more than with you so they might be willing to treat this as if you elected the stretch to protect the agent.