Inherited Roth IRA Distribution

Submitted by Tjeran Jolliffe on Tue, 2016-10-11 15:41

Ref: Post yesterday. The 1099-r had a code of T. If you use that code the amount will show up as taxable on Form 8606. Do you just enter a code of Q to make it not taxable thereby being in conflict with what was filed with IRS. Again you are saying that A roth distribution owned by the deceased who had not taken any distribution before the first five years is still not taxable by the beneficiary even though it has been more than 5 since the date of death and the beneficiary took a total distribution in 2015. Again the owner died in 2003 and the beneficiary .didn’t take any distribution until 2015. Entering a code Q is the only way to get the amount to show up in box 15a and non taxable. Will this trigger a notice by IRS? If IRS questions this could you then file the one 5329 for 2008 even thought it is being filed many years later.Is there a time line to request a waiver of penalty with IRS?



Submitted by Alan - IRA critic on Tue, 2016-10-11 16:42

  • Enter the Q because the distribution is qualified. There is no 8606 completed in this situation per Form 8606 Inst. It does not matter if prior distributions have been taken or not. As long as the Roth IRA was opened at least 5 years ago and the owner has passed, all distributions are qualified. The T code is incorrect as the 1099R Inst indicate that T applies if the custodian does not know if the 5 year holding period has been met. But this custodian knows because they have held it far longer than 5 years. There should be no inquiry from the IRS, but if there was it could be easily proven that the Roth has been held 5 years. Even the death certificate would prove that an inherited Roth from this decedent had to have existed at least since 2003.
  • The above applies to taxation of the distribution (none). The penalty waiver for missing RMDs is not in any way related to taxation of distributions once they are taken. The penalty waiver is intended to eliminate the 50% excess accumulation penalty for failing to take RMDs on time, which has also occurred here. There is no time limit to request a waiver or for the IRS to assess the penalty. Therefore, a 5329 (or multiple forms) should be filed to request the penalty waiver. The IRS instructions are not clear regarding the amount of the waiver request when the 5 year rule applies. Either the year end 2008 balance or the total value just distributed could be shown if only a 2008 5329 is being filed. When providing an explanation of the reasonable cause for the waiver, it would be beneficial to explain why the beneficiary was not aware of the account. 

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