Inherited IRA problem
IRA owner died in 2006, too young for RMDs.
IRA Beneficiary was irrevocable trust for minor child.
Family just (2011) got IRA changed over to show the new trust as owner. The new trust is for the benefit of the minor child.
No withdrawals have been taken since the death of the original owner.
Their intention/desire is to stretch out the IRA withdrawals over next few years.
How much do they have to withdraw?
Permalink Submitted by mk foss on Thu, 2011-06-09 17:36
The default method for a beneficiary is life expectancy – you elect life expectancy by taking the first distribution by 12/31 of the year after the death (12/31/07 in this case). Failure to start the life expectancy payments puts you into the five-year rule, which means the IRA is supposed to be empty by 12/31 of the year that contains the 5 year anniversary of the original owners death. In this case, that would be 12/31/2011 BUT because no distributions were required for 2009 – 12/31/2012 would be the final day for a 2006 death of someone who was too young to have commenced RMDs.
There have been instances where beneficiaries have calculated what the missed distributions would be (for 2007, 2008 and 2010) – withdrawn those amounts from the IRA and asked IRS to rule that they can go forward with a life expectancy payment schedule based on the life expectancy of the trust beneficiary. A ruling request is expensive but if the numbers are large it would be a great tax savings.
Even the ruling doesn’t help if the trust doesn’t qualify for “see through” treatment. There are 4 requirements to meet in order to use the life expectancy. One of them requires that documentation is provided to the IRA custodian about the trust beneficiary by October 31 of the year after the death. Since there has been such a delay in funding the trust, it’s possible that this requirment has not been met and you’re stuck with the 5-year rule.
Permalink Submitted by Thom Hall on Thu, 2011-06-09 21:28
Thanks, Mary Kay!