Roth non-spouse beneficiary

Submitted by Ed Koznarek on Fri, 2013-02-08 23:22

Mom died in 2001 and leaves Roth to daughter. Daughter takes no RMDs but just now has become aware she should have taken RMDs since 2002. How do you remedy? Go back and retroactively calculate what the RMDs should have been and take all out now? Or, will the IRS hold that if RMDs were not taken in 2002 then the five year rule applies and require that the entire Roth should have been cashed out at the end of 2006 (and then all the gains thereafter are now taxable)?



Submitted by Alan - IRA critic on Sat, 2013-02-09 00:10

In many cases, the stretch can be restored by making up the RMDs and paying the penalty. But the first letter ruling that allowed that was in 2008 and only involved a couple years of made up RMDs. In this case, there is no telling what the IRS would require. Remember that a Roth owner is always deemed to have passed PRIOR TO the RBD, and that means the 5 year rule applies if the life expectancy RMDs are not taken.  As far as taxes go, this Roth is now fully qualified and tax free, but choices remain what to do about the RMD failures:

  1. Distribute the entire account and file a 5329 for each year requesting that the penalty be waived. Use the best “reasonable cause available”. Since daughter drained the account and self reported the omission, there is a decent chance the IRS will waive the penalty. The IRS also realizes that custodians have done a poor job of communicating inherited IRA RMD requirements to beneficiaries.
  2. If daughter wants to be more aggressive, she could have all the RMDs calculated starting in 2002 (2009 waived), distribute that total and request the waivers with the 5329 forms and then start life expectancy RMDs in 2013, properly reducing her original divisor by 1.0 each year based on her age as of 12/31/2002.
  3. She is probably not young enough to make it worth improving her chances of restoring her stretch by paying 10 years worth of 50% penalties.
  4. She should not have to worry about income taxes no matter what she does, because an RMD omission does not change the date when the Roth becomes qualified.


Submitted by Ed Koznarek on Thu, 2013-02-21 00:32

Thank you.  Very helpful.



Submitted by Bruce Steiner on Thu, 2013-02-21 03:16

This is similar to PLR 200811028.I’m not sure the two issues (waiver of the penalty and availablity of the stretch) are related.Of course, since private letter rulings are not binding on the IRS except with respect to the taxpayers to whom they are issued, she might discuss with counsel whether to apply for her own ruling.



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