non -spousal inherited ira

Submitted by Jennifer Poole on Wed, 2014-02-05 16:05

Does client have to take a distribution within 5 years? Client thinks his tax guy told him he had to take a distribution to avoid some taxes.



Submitted by Alan - IRA critic on Wed, 2014-02-05 18:27

Client needs to decide on either the 5 year rule or life expectancy distributions. The 5 year rule can only apply if owner passed prior to the RBD. For a determination of his options, would need to know the age of owner at death, whether client was named directly or inherited it through an estate, or what distributions client has taken so far. If he does not take the RMDs required, he faces a nasty 50% penalty of the amount he should have taken out.

Submitted by Jennifer Poole on Wed, 2014-02-12 01:50

Owner did pass away prior to 70 1/2. Is that the RBD? Client asked if he could just take it out (only 9,000) & pay the taxes?His income is lower this year. Client said he would rather keep it invested but in his own name. What would the advantages be, if any?

Submitted by Alan - IRA critic on Wed, 2014-02-12 16:48

  • Client can always take out more than the RMD, just not less. Therefore, he can just take a total distribution and report it as taxable income on line 15b of Form 1040. Or he could choose the 5 year rule in which there are no annual RMD, but account must be drained by the end of the 5th year following the year of death. He could also choose life expectancy and use Table I to determine his annual RMD.
  • Some advantages of taking the lump sum distribution in a lower income year are that his total taxes for the distributed IRA would be less. He also would not have to worry about RMDs any longer or naming a successor beneficiary. For 9,000 it probably does not matter which he chooses as long as he does not fail to take any RMD required.

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