Inherited Roth IRA Distribution

Submitted by Tjeran Jolliffe on Mon, 2016-10-10 19:58

A parent died in 2003 with a Roth IRA and hadn’t taken any distributions. Nothing was distributed until the account was discovered in 2015 when there was a total distribution to a son as the beneficiary. The 1099-r had a distribution code of T. Apparently the entire amount is taxable and reported on line 19 of Form 8606 and ends up as taxable on line 25. I think this is because it wasn’t distributed within 5 years after the year of death of the parent. I assume you must file Form 5329 and would like to file it with the 2015 1040 tax return and ask for a waiver of the penalty. How do I complete Form 5329 Part IX line 52 through 55? The value in the account when cashed was 6,000. How do I calculate the required minimum distribution and since the amount distributed was a 100% of the account and that would be higher than any minimum required distribution I am assuming there would be no need to request a penalty waiver for 2015 but possible would have to go back and file Form 5329’s beginning with the 5th year after the death of death and request penalty waivers for each year. Is this correct?
Would I have to know the value of the account at 12-31-04 to calculate a required minimum distribution for 2015



Submitted by Alan - IRA critic on Mon, 2016-10-10 21:21

  • First, the easy part. The distribution is tax free because the Roth was obviously held over 5 years and the distribution is a death benefit due to parent’s death. While the distribution is qualified, some custodians are not using the Q code when they should be. Form 8606 does not need to be filed, so the entire distribution shows up only on line 15a of the 1040.
  • There is a choice regarding the late RMD penalty waivers. While the Roth likely had life expectancy as the default beneficiary RMD requirement, figuring the actual RMD for every year since 2004 (except 2009 when RMDs were waived) will take considerable research to determine the prior year end value. It would also require a 5329 to be completed for each year for the penalty waiver for that year. That would be 11 5329 forms. However, since a full distribution has taken place there is no stretch remaining to be saved and the beneficiary apparently has an excellent “reasonable cause” for missing those RMDs. Therefore, the IRS is highly likely to approve the waiver. To reduce the 5329 forms to just one (2008), the beneficiary could elect the 5 year rule and just file a 2008 5329 showing the account value as of year end 2008 as the amount the penalty would be based on. The line #s of the 2008 5329 are different than recent forms. For the first two lines, complete as instructed, for the 3rd line enter “RC” and the value at the end of 2008 in parentheses on the dotted line and 0 on the actual line and also enter 0 on the final line.

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