Inherited IRA withdrawl…

Submitted by tara wright on Mon, 2018-06-18 21:09

I inherited a self directed IRA from my mom in November 2017……(I just found out about it in 2017) . My mom died at 73 in 2009 and did not take any withdrawals…. I need to withdraw from it for my children’s college and some home repairs. Trying to figure out the penalty’s work…



Submitted by Alan - IRA critic on Mon, 2018-06-18 22:40

An inherited IRA distribution does not have a penalty. However, if you were listed on the account as the beneficiary you must make up all your RMDs beginning with 2010, and file Form 5329 for each year to request a penalty waiver for missing the RMDs. You do have a valid reason, not having known about the account. In other words, you do not have an early withdrawal penalty, but must make up the late RMDs and file Form 5329 to eliminate the late RMDs penalty of 50% for each year.  That means determining what the correct RMD would have been for each of those years. You may be able to get a Form 5498 or statement of the year end balance of the IRA each year from the custodian. If the amount you wish to withdraw is most of the balance anyway, then perhaps you should just take out a full distribution. Finally, if this IRA was invested in real estate or other illiquid asset, then there is also a challenge in selling those assets.

Submitted by tara wright on Tue, 2018-06-19 20:06

Okay, so I wont have an early withdrawl penalty but I will have to pay taxes..how do I figure what they are going to be? 

Submitted by Alan - IRA critic on Tue, 2018-06-19 20:23

The additional taxable income for making up the late RMDs is just added to your other income less your deductions. Usually, you could just add the distribution to your 2017 return and re figure it, however because there are major changes effective in 2018, you would have to estimate your tax bill by using the new rates and probably the higher standard deduction unless you have a high amount of itemized deductions. Of course, before estimating your taxes you would have to figure out how much you need to withdraw from the IRA, which would be the higher of the amount you need for expenses OR the total of the missed RMDs you need to make up.

Submitted by tara wright on Tue, 2018-06-19 23:13

On your first respone you mentioned if I was listed as the beneficiaryI would have to make up the RMD’s…I was not listed. Next where would I find the major changes effective in 2018 and the new rates and higher standard deduction you mentioned?  

Submitted by Alan - IRA critic on Wed, 2018-06-20 01:28

  • Technically, you inherited the IRA in 2009, even though you did not know it at the time. If you were not the listed (designated) beneficiary, it is likely that the IRA passed to your Mom’s estate, and then was assigned to you (and perhaps others) by the estate executor. This would result in your beneficiary RMDs having to be based on your mother’s remaining life expectancy at the time of her death rather than your own.  If she would have been 74 at the end of 2010, your 2010 beneficiary RMD divisor would have been 13.8 with the entire inherited IRA being drained around 2023.
  • https://www.forbes.com/sites/robertberger/2017/12/17/the-new-2018-federal-income-tax-brackets-rates/#2ec96ae6292a

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