Question on Inherited IRA Distribution Penalty
Client’s husband died when he was 56. He died mid-2013. Client has a balance in a 401(k) which is inherited. Client wishes to roll over the 401(k) to an IRA in 2014 (this year still). She would like to place a withdrawal from the account. She is 52. She would like to know if there is a penalty of 10% on that withdrawal. She also would like to know if she needs to take RMDs out of the account since it is an inherited IRA, even though she isn’t 70.k y/o yet.
Permalink Submitted by Alan - IRA critic on Mon, 2014-12-22 15:30
There is no penalty if she titles the IRA as an inherited IRA rather than one owned by her. And if she does that, her first RMD would not be required until the year her husband would have reached 70.5. She should continue the inherited IRA until she reaches 59.5 and then roll it over to her own name. If she withdraws from either the 401k or an inherited IRA, there is tax but no penalty. If the 401k has after tax contributions in it, that portion should be directly rolled to a Roth IRA as part of the same request to roll the pre tax amount to an inherited TIRA.