Inherited Roth IRA Distribution Rules
I just took on a client who transferred an Inherited Roth IRA over to us from another firm. It turns out he inherited the account from his father who passed way on November 19th, 2008. My client has never taken a distribution from this account.
I am looking for some specific informaton on what the deadline was/is on taking withdrawals from this account. I believe he missed the opportunity to do the annual withdrawl based on his life expectancy so he would have had to take a full distribution within 5 years of the original owner’s death, is this correct? If so, that deadline has come and gone as of November 19th, 2013. What are his options now? What type of penalty is he subject to for a late withdrawal? How should he report this issue/correction to the IRS?
Thank you!
Saleah
Permalink Submitted by Alan - IRA critic on Fri, 2014-05-02 19:54
He may still be able to restore the life expectancy stretch if he wants to. To do this the RMD would need to be calculated for 2010-2013 and distributed. He could then file a 5329 and request a penalty waiver for each year on that year’s edition of Form 5329. By now all distributions will be tax free since the Roth has obviously existed more than 5 years. 2009 RMDs were waived and that is why only 2010-2013 are currently delinquent. He could also choose the 5 year rule if he wanted to and would not need a 5329 because there would be no potential penalty to waive. Under the 5 year rule with 2009 waived, the entire balance would have to be distributed by 12/31/2014.
Permalink Submitted by Saleah Hewitt on Mon, 2014-05-05 21:23
Thank you Alan! Very helpful as always!