Inherited IRA -RMD Issue
My father died in 2010 and had a IRA account valued at that time at $49,000 with Fidelity. My brother and I are the beneficiaries of this IRA. My father was 89 yrs old when he died. I do not think he had RMD’s taken out of this account. Fidelity has contacted us and advised that we need to split the account and create one account for myself and one for my brother. The missed RMD issue is a big one. Since he died in September 2010, we have missed the 5 year option to take a total distribution of his IRA account without any penalty. The account balance is still at $49,000 as it was in a money market account. I am age 60 and my brother age 64. I need advice as to the best way to proceed. Should we both take cash distributions and hope the IRS does not come after us or should we figure out what the RMD’s were suppose to be and pay the IRS and submit a waiver form with an explanation as to why we did not move the account and take the RMD’s? Any advice you could provide would be greatly appreciated.
Permalink Submitted by Alan - IRA critic on Sat, 2016-10-01 16:20
There was never a 5 year option because father passed after his required beginning date. Since life expectancy RMDs apply for both of you starting in 2011, you should reconstruct what your RMDs should have been for each such year. You need to do this anyway, so no sense in taking lump distributions unless one or both of you no longer which to deal with the RMD issue going forward. You each need to file Form 5329 forms for each year to request that the penalty be waived. Since these would be self reported, the IRS will probably grant the waivers. As for the 2010 year of death RMD, that particular RMD can be taken in any combination between the 2 of you, but a 5329 is also needed for 2010 to request the penalty waiver. For these waivers, use the best applicable explanation available to you and include a copy of the distribution statement showing the aggregate amount distributed for all the waivers. Take the 2016 RMD separately, either before or after the make up RMDs. Note that since separate accounts were not created by the deadline, you must both use the ages of your brother to determine your RMD divisors as he is the oldest.