Non-Spouse Beneficiary Misses First RMD – Original Custodian Will Not allow Stretch
Non-spouse beneficiary (the Nephew) missed the 1st RMD from an IRA held in a Variable Annuity. The 1st RMD should have been taken by 12/31/2016. The current custodian now says that they will only allow a Lump Sum distribution. They will not allow a stretch with them, nor will they transfer to another custodian to allow him to set up a Beneficiary IRA. Does the beneficiary have any options at this point?
Thank you for your help,
Rich
Permalink Submitted by Alan - IRA critic on Sat, 2017-07-22 00:19
Under IRS PLR 2008 11028, a missed RMD for an IRA with Life expectancy as the default method can be made up and LE RMDs to continue. The 50% penalty may or may not be waived by the IRS. If you assume that this non spouse beneficiary did not inherit any other IRA accounts from the same decedent for which RMDs could be aggregated, then the beneficiary is dealing with an insurance company with very restrictive, if not hostile conditions. Taxpayers need to keep their beneficiaries in mind when leaving an IRA annuity to them as the tax bill for an LSD along with loss of deferral can be punishing. But I do not know what option the beneficiary has if the custodian will not release funds to another inherited IRA custodian. No IRS rule requires them to. Did this insurance company notify the beneficiary of these provisions and/or the RMD amount for the account? Note that Congress has considered legislation to allow 60 day rollovers for non spouse beneficiaries, but who knows when if ever they will ever get to actually passing it.