Under-aged Beneficial IRAs – kids need money
I have 2 children who inherited IRAs from their dad. Father was born in 1964 and died in 2003. Kids need money to keep them in their current HS. Can they take money from the IRAs and avoid the penalty? If father was still living he would only be 48.
Guidance would be much appreciated.
Mike Sicuranza
Permalink Submitted by Alan Spross on Mon, 2012-02-13 18:10
There is never an early withdrawal penalty on any distributions from an inherited IRA. The custodian will code the 1099R with Code 4, which is the code for a death benefit. The only way the children would be penalized is due to failing to take their annual RMDs from the IRA. These RMDs should have started in 2004 and continued every year thereafter except 2009 when RMDs were waived. These RMDs and any other distributions would be taxed but NOT penalized.
Note that RMD income can trigger the “kiddie tax” as they are considered the investment income of a child if over 1,900 per child and at least one parent of the child is still living. See Form 8615.