Inherited IRA not distributed
I have a client whose farther died in 2003 at the age of 85.
In 2004 my client became a custodian on a DSW ira custodian account (currently 10k) in his father’s name, he was not informed that he had to take a yearly distribution on the account. His understanding of his distribution obligations were the same as his other IRA(s). This issue came to light when DWS informed that he must take a distribution.
1. what is the best way to handle this?
2. If he takes a full distribution in 2014 what are the reporting requirement?
3. What are the penalty requirements?
Permalink Submitted by Alan - IRA critic on Thu, 2014-02-27 21:28
Since the account is very small, it would be best for him to just take a lump sum distribution to improve his chances for a penalty waiver for the missed RMDs from 2004-2008 and 2009-2013. He would only report the taxable income in the year of distribution (2014), but he should file a 5329 for each of those years requesting a penalty waiver for reasonable cause. By indicating he never knew about the RMDs before he reached 70.5, he will probably get the waiver of all those penalties, but being able to send a copy of the statement indicating a full distribution will be helpful in getting the penalties waived. The tough part is determining what the RMD should have been for all those years. He would have to determine the prior year end balance and his divisor for each year in order to complete each 5329. He can then send them together to the IRS requesting the waivers. See p 7 of the 5329 Inst.