403 b beny in sister
client with 403b passed away @ 45 and beny was his sister 42.
a. does she have to take a distribution from the 403b every year?
or
b. can she wait until she turns 70 1/2?
or
c. Can she do a 5 yr deferral?
Thank you,
Douglas
client with 403b passed away @ 45 and beny was his sister 42.
a. does she have to take a distribution from the 403b every year?
or
b. can she wait until she turns 70 1/2?
or
c. Can she do a 5 yr deferral?
Thank you,
Douglas
Permalink Submitted by Alan - IRA critic on Wed, 2014-04-16 19:57
She must start her RMDs in the year after client passed if she wants to take life expectancy RMDs. She cannot wait until 70.5. But if the 5 year rule suits her better, she could elect the 5 year rule, although that is not normally the best option.
Permalink Submitted by Douglas Bauerband on Thu, 2014-04-17 20:55
the clients brother passes away over 10yrs ago. The 403b was renamed to the sister as FBO. Now since she hasn’t taken the RMD and the 5yr rule is over with…would she have to:a. take the whole thing now and pay the taxes?b. would there be penalties?Thankyou,Douglas
Permalink Submitted by Alan - IRA critic on Thu, 2014-04-17 21:26
No simple answer. The RMD Regs changed in 2002, and after that some plans were faster to change their RMD requirements than others. Plans were still allowed to make the 5 year rule their default rule, particularly if beneficiary did not elect life expectancy within a certain time. Even the IRS Letter ruling that allowed for restoring life expectancy when no RMDs had been taken did not apply to a plan with the 5 year rule as the default rule. Accordingly, I suspect that she has fallen under that rule and should take a full distribution. She could then file Form 5329 and request a waiver of the penalty for reasonable cause, perhaps not having been provided notice from the plan on what she had to do. If she has taken a full distribution, the IRS will probably waive the penalty which would be 50% of the account balance back at the end of the 5th year after inheriting.