RMD’s on an Inherited Inherited IRA
I have a client who is the beneficiary of her mother’s IRA. Her mother died in August 2012. We discovered that the IRA registration is actually an “inherited IRA with the origial owner (her step father, who died in 2004), so my client inherits an inherited IRA. I think that her mother should have been taking RMD’s using the inherited IRA rules (single life table minus 1 each year) is this correct. I think we have to continue with this schedule?
Permalink Submitted by Alan - IRA critic on Mon, 2012-12-17 23:33
Depends on certain ages. How old was her step father on 12/31/2004 had he lived to that date, and was he married to her mother at the time of death? Was her mother the sole beneficiary? And what age would her mother attain if she lived to the end of 2012? There are several possibilities depending on these dates.
Permalink Submitted by Kristin Rasmussen on Tue, 2012-12-18 00:29
I am not sure how old her step father was but I know he died after RBD and yes her mother was married to him at the time of his death and she was the sole beneficiary. Her mother’s account was titled “Her Mother, as beneficiary” on her step father’s IRA (decedent). I don’t understand why the custodian made this a beneficial IRA instead of spousal?
Permalink Submitted by Alan - IRA critic on Mon, 2012-12-17 23:33
Duplicate
Permalink Submitted by Alan - IRA critic on Tue, 2012-12-18 00:55
The custodian will always set up a beneficiary account pending request from a sole spousal beneficiary to assume ownership. Usually, when they receive the request they will transfer to a new owned IRA account for the spouse, but they also could retitle the existing account if they wished to.Since stepfather passed after his RBD, her mother needed to take beneficiary RMDs in 2005. But there is a default rule that indicates a sole spousal beneficiary who fails to take the RMD as beneficiary defaults to ownership of the IRA. If her mother failed to take the RMD as beneficiary in 2005 or later year, when she acquired ownership, she was either under 70.5 or would have been responsible for the lower RMDs as owner for each year including the year she reached 70.5. If she did not take the 2005 RMD, she became owner in 2005 for RMD purposes and should have the account re titled or rolled over at this time. Then she needs to make up all those RMDs, except for 2009 when RMDs were waived. She can file Form 5329 for each such year and request that the IRS waive the 50% penalty for reasonable cause (determine the best one) and often the IRS will waive penalties for self reported RMD omissions. She might save taxes by taking half thse RMDs before 12/31, and half afterward so that the total distributions will not be taxable in the same year. There is no need to amend any prior tax returns, and the 5329 forms can be filed together with an explanatory letter per the Instructions for Form 5329, p 6.