Nonspousal Inherited IRA

Submitted by Patrick Twohy on Sat, 2017-03-25 03:02

My dad passed in 2015 at the age of 71.

I have an IRA account still in my Dad’s name. My mother, rolled over her portion in 2015. However there was a bit of a mixup in terms of beneficiary amounts. Either way, I did not roll over the IRA into my name or take out any RMDs. While not an excuse, losing my father was a difficult experience for me and knowing the logistics of my IRA options were the furthest thing from my mind, in the end I am at fault for this.

Ideally, I would have liked to have stretched the IRA over my life expectancy. However the advisor is telling me that since I missed the cut off date of 12/13/2016 my only options are either take a lump sum distribution, or take out the remaining funds in a 5 year period.

I’ve been doing some research and came across Private Letter Ruling 200811028. I’ve tried to consult with a couple of advisors, and have received different opinions from both. One said that I should still be able to stretch, as long as I make up the distributions I missed, and pay the 50% penalty. I was wondering if this ruling would apply to me and allow me to stretch the IRA? Or if the initial advisor is correct in that the ship has sailed on the stretch option?

Any recommendations would be greatly appreciated.



Submitted by Alan - IRA critic on Sat, 2017-03-25 18:00

  • As long as the default provision of the IRA agreement specifies life expectancy RMDs and almost all do, you can restore your life expectancy stretch by making up the 2016 RMD ASAP. You can even be more aggressive and request a waiver of the 50% penalty using Form 5329 and stating your “reasonable cause” for the delay. You can include the 5329 with your 2016 return if you have not yet filed, but the late RMD will be taxable in 2017 along with your 2017 beneficiary RMD.
  • On a related matter, it is not clear whether your Dad passed before or after his RBD, which is 4/1 of the year following the year he reached 70.5. If he passed ON or AFTER that date you and your mother in any combination should have completed his 2015 RMD if he had a 2015 RMD that he did not take before his death. That will also require a 5329 if it was due and not completed by the end of 2015.
  • I assume your mother rolled her portion of the inherited IRA into her OWN IRA account, not a beneficiary RMD. Perhaps you should confirm that with your mother because that also has implications for her. If you find out she has a beneficiary IRA account, please advise.

Submitted by Bruce Steiner on Mon, 2017-03-27 00:54

  • What’s an “advisor”?  What does the lawyer handling the estate say?
  • Alan:  while the taxpayer in the ruling the original poster cited conceded the penalty, filing the Form 5329 to ask for a waiver of the penalty isn’t “aggressive.”  Prepare the explanation as best as you can (or have the lawyer prepare it).  Since it’s only for one year, the penalty probably won’t be very much if the IRS doesn’t waive it; and since it’s for only one year, it may be easier to explain the failure.
  • Bruce Steiner, attorney, NYC, also admitted in NJ and FL

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