Inherited 50% of trad IRA – missed RMD for 2016, 2017
My father passed away in 2015 (he was 75 and had already begun RMDs earlier) and left 50% of his trad IRA to my mother (age 64 at the time) and the other 50% to me ( age 24 at the time). The total value then was roughly 5000- so i inherited roughly 2500 then. Currently in time now the account stands in the same sum of money inherited roughly- 2600. Unfortunately, speeding up to now, my mother and I were not made aware of this IRA til April 2018 and therefore just recently had our beneficiary accounts just set up now.
First question: I would theoretically just like to take the lump sum, close the account and be over with it ( obviously paying the tax for the withdrawal in 2018, writing a form asking for waiver for failed RMD withdrwals). BUT, in tackling this formally considering the missed RMDs 2016/17. I m wondering whether seperate withdrawals for the missed RMDs would be better advised. – long term goal , i would like to withdraw all the money anyway this year and close the account and be over with this anyway.
Second question is: if I should decide go about with seprate withdrawals for 2016/2017
How to go about regarding the missed RMDs for 2016/17. (I am aware of all this 50% excise fee for not having withdrawn and I know I can file a form 5329 and ask for waiver.) But since i inherited 50%, does that mean I go about calculating the RMD on 50% of the acount, using my age? or the age of the eldest beneficiary- my mother?
Thanks.
Permalink Submitted by Alan - IRA critic on Tue, 2018-06-26 15:02
Because separate inherited IRA accounts for each of you were not established by the deadline (12/31/2016), both of your beneficiary RMDs are calculated using your mother’s age (oldest beneficiary). You are jointly responsible for completing your father’s 2015 RMD as well if he did not complete it before passing. From a distribution standpoint, since you plan on taking a lump sum distribution anyway, doing that will automatically make up any past RMD shortfalls. Your lump sum distribution will also satisfy your mother’s share of the 2015 RMD balance, if any. However, you do need to calculate the shortfalls in order to file the 2015 (if necessary), 2016, and 2017 5329 forms to request the penalty waiver. Not knowing about the account is certainly a “reasonable cause” for the IRS to grant the waivers, and I am sure they will if the forms are filed correctly with a statement of your reasonable cause and that you have drained your share of the inherited IRA. Form 5329 for this purposes only has 4 lines, but lines 54 and 55 are tricky to fill out. When a waiver is requested, both should be “0” and the amount of the late RMD for that year goes on the dotted line next to line 54 with “RC” next to it. The late RMD will be based on your 50% share of the 12/31/2015 and 2016 balances respectively, and since you are draining the account, if you need a 2015 5329, you will need to know the uncompleted portion of your father’s 2015 RMD for that 5329.
Permalink Submitted by Maggie Brown on Tue, 2018-06-26 18:17
Sounds good. Very useful information.Luckily, more than the RMD amount in 2015 was taken out prior to my father’s passing in late 2015, so I will only be doing the 5329 form about the late RMD for 2016 and 2017 w/ the waiver then it seems? I will be withdrawing the lump sum, then the 5329 for 2016/17 w/ waiver and then filing taxes for the sum in 2018 taxes.If this sounds wrong please let me know, but thank you again for the useful info!
Permalink Submitted by Alan - IRA critic on Tue, 2018-06-26 19:51
Yes, you have it right. Note that if you are draining the account to simplify things, and you have a retirement plan at work that you are not maxing out, you could use the inherited IRA distribution to subsidize increasing your own retirement plan contributions. The tax break for these contributions would offset the taxes due for the inherited IRA distribution.