Inherited IRA

Submitted by Winifred Fallon on Tue, 2018-02-20 07:59

In 2010, my father passed away. I was a named beneficiary (1 of 5 beneficiaries).I established an Inherited IRA and took no further action until 2017 when I rolled it over to Vanguard. I was unaware that I should have been taking RMDs for the last 7 years until I started to do my 2017 taxes and realized the error and may subject to penalties. However, I find the rules difficult to understand. How do I report it? Thank you for your time and consideration.



Submitted by Alan - IRA critic on Tue, 2018-02-20 16:07

  1. You need to determine your RMD amount for 2011 forward and request a distribution of the 7 missed RMDs. This distribution will be taxable in 2018. In order to determine those RMDs you will need the year end balance of the IRA on 12/31/2010 and later years. That should be the challenging part. Your divisor is simple, the first one coming from Table I based on your age on 12/31/2011. This assumes that your separate inherited IRA was created by that date. Otherwise, you have to use the age of the oldest beneficiary that did not establish a separate inherited IRA by that date.
  2. Next, you should apply for waiver of the penalty using Form 5329 for each respective year. For your “reasonable cause” explanation simply state that you were not aware that RMDs were required, but that you distributed all the late RMDs as soon as you became aware. Send these forms together to your IRS filing center. Do not attach to your 2017 return except for the 2017 5329.

Submitted by Winifred Fallon on Tue, 2018-02-20 18:51

Thank for your for the prompt reply. To confirm, I need to file seven forms 5329, one for each year 2011-2017 and a letter for each year. Do I need to adjust the 12/31 vaue for the amount of the respective years RMD. Or, use the value actulal statement value?

Submitted by Alan - IRA critic on Tue, 2018-02-20 19:00

Yes, 7 5329 forms. Download the correct edition from the IRS site. You could do a single explanatory memo and copy it for each 5329, and show the RMD amount for that year. You do not have to adjust the year end balance for RMDs you later made up, and most people do not even though that would reduce the later RMDs due to use of a reduced balance. Not clear if adjustments would reduce the chance of waiver approval, but you can generally count on approval when you detect, correct, and self report the omission. The IRS may not respond to your 5329 submissions, and no news is good news.

Submitted by Winifred Fallon on Tue, 2018-02-20 19:19

In my question, I mistakenly stated that the account ws rolled over to Vanguard.  In fact, it was taken as a Total Distribution as Reported on 1099-R and Federal Income Tax was withheld. Do I still proceed with the 5329 as above or are different steps required?  I apologize for the confusion. Thank you.

Submitted by Alan - IRA critic on Tue, 2018-02-20 19:33

Yes, the 5329 forms are still required if you want closure that the IRS does not eventually levy a penalty for the missed RMDs. The only thing that changes with a total distribution is that you obviously have made up the shortfall. But you still need to determine what the RMD would have been for each year in order to know how much of a penalty waiver you are requesting for each year and for the IRS to know the amount of penalty they are being asked to waive.

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