Inherited Roth IRA
Roth ira owner died in 2013 and his adult daughter was named beneficiary. she had not done anything with it as of january 2015. since she did not set up an inherited IRA will she have to distribute under the 5 year rule?
Roth ira owner died in 2013 and his adult daughter was named beneficiary. she had not done anything with it as of january 2015. since she did not set up an inherited IRA will she have to distribute under the 5 year rule?
Permalink Submitted by Alan - IRA critic on Fri, 2015-01-16 23:39
Maybe not. She needs to submit the papers and have the IRA retitled. Then she needs to complete the owner’s 2013 RMD if the owner passed after the required beginning date and had not completed the 2013 RMD. She also needs to complete the 2014 RMD required as beneficiary. Then she needs to file a 5329 to request the penalty be waived on her 2013 return (with 1040X) and a 5329 with her 2014 tax return requesting a penalty waiver for reasonable cause. The IRS will probably grant the waiver by not replying, but it is also possible that they will deny the waiver if she wants to restore life expectancy RMDs and the owner passed PRIOR to the RBD. In that case she would owe the penalty for both years or one year if the IRS accepts the waiver for only the year of death. As you can see, the solution varies according to whether owner passed prior to or after the RBD. The 5 year rule only applies to deaths prior to the RBD.
Permalink Submitted by Don Warnke on Sat, 2015-01-17 13:27
since this is a Roth IRA would the same forms need to be filed and would there be a 50% penalty for not taking the 2014 RMD? Also does she have the option to simply leave the account as is and liquidate it within 5 yrs?
Permalink Submitted by Edward Czapor on Sat, 2015-01-17 03:05
Alan, I believe you missed the fact that this is a Roth IRA, where the five year rule applies. Could the life expectancy withdrawal rate be re-established if the penalties are paid. I seem to remember where the IRS had allowed this.Ed C.
Permalink Submitted by Alan - IRA critic on Sat, 2015-01-17 17:41
Yes, I overlooked that this was a Roth. Forget the owners year of death RMD since this is a Roth. For the beneficiary, the same options apply with respect to restoring the life expectancy stretch. PLR 2008 11028 allowed the stretch if the 50% penalty was paid (on 2014 RMD in this case), but it is worth the effort to make up the missing 2014 RMD and request a penalty waiver on Form 5329 with the 2014 return. It will probably be approved via lack of response. Of course, if the beneficiary plans to withdraw the entire account within 5 years anyway, then she can use the 5 year rule with no particular RMD amount in any year but the entire account must be drained by 12/31/2018. No 5329 needed in this case.
Permalink Submitted by Don Warnke on Sat, 2015-01-24 21:31
how does she request the waiver? i see on the 5329 where she completes her 2014 distributin requirement and calculates the 50% penalty. also is this cone when she completes her tax return?
Permalink Submitted by Alan - IRA critic on Sat, 2015-01-24 22:48
See p 7 for the details on how to complete the 5329 waiver request: http://www.irs.gov/pub/irs-pdf/i5329.pdfThe request should be part of the 2014 return.