non spouse Beneficiary inherits IRA from father originally at age 12
New client I just got. He is currently 19….he was a minor (12) when he inherited an IRA from his father in 2009 who was 54 at the time. The IRA was put into conservatorship status here in GA and had to be in cash until he was age 18. The mom said to me (I havent seen the papers) that the judge said she couldnt touch any of the money and the IRA had to stay separated from the non IRA account he inherited as part of the conservatorship/guardianship. At 18, the conservatorship/guardianship was no longer necessary and the IRA became officially his Inherited IRA. My big concern is he never took any distributions and my understanding is that all on spouse beneficiaires have to either take distributions based on their own life expectancy or withdraw it out over the 5 year rule and this must be decided by 12/31 following the death of the original IRA owner. This client has never taken anything out ever…..would teh conservatorship/guardianship status until he turned 18 exempt him from having to take distributions as a non spouse beneficiary? My gut says no, as IRS always seems trump everything but Im not sure how to advise this client to make sure we have it set up properly going forward and fix the problem of not taking distributions for past 7 years!
Any advice?
Permalink Submitted by Bruce Steiner on Tue, 2016-12-27 22:17
Permalink Submitted by Alan - IRA critic on Wed, 2016-12-28 00:13
I agree that the stretch can be restored by calculating and distributing all 7 years of delinquent RMDs. This is possible because the default RMD method for almost all IRA accounts had been changed to the life expectancy method prior to 2009. Therefore, there was no 5 year rule requirement when nothing was done at the end of 2010. Form 5329 must be filed for each year requesting the waiver and with some documentation of the conservator requirements the IRS will likely waive the penalties. That said, the court order to not take RMDs was incorrect.