Inherited IRA - non spouse beneficiary - decedent was over 70.5

Submitted by chris erickson on Tue, 2018-10-09 18:17

Hi,
My uncle passed away when he was over 70.5. I’m the sole beneficiary of his IRA. The assets have been transferred to an inherited IRA in my name. The IRA custodian allows for me to stretch payments over my lifetime if I wish. He passed away in June 2016 but I did not take any distributions in 2016 or 2017.

1) Because I did not take any distributions in 2017, must I now withdraw my entire balance within 5 years of his death to avoid penalties? Or is the 5 year option not even available to me anymore?

2) Can I just pay a penalty for the missed distribution in 2017 and continue to stretch distributions over my lifetime?

3) I don’t know if he took his RMD before he died in June 2016. If he didn’t take his RMD, I believe that I should’ve taken an RMD in 2016 — correct?

Thank you!

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Permalink Submitted by Alan - IRA critic on Tue, 2018-10-09 19:04

The 5 year option is never available if uncle passed after his required beginning date. That date is 4/1 of the year following the year he reached 70.5, so technically he could be 71 and still pass prior to the RBD. Once you are sure that he passed after the RBD, your option is life expectancy.
The IRS is likely to waive the penalty if you make up the 2017 life expectancy RMD and file Form 5329 requesting the penalty be waived for reasonable cause. The late RMD will be taxable in the year distributed, so if that is this year you will owe taxes on both the 2017 and 2018 RMDs on your 2018 return. However, the 5329 you file to request the penalty waiver is the 2017 edition and you can file that by itself along with your explanation of “reasonable cause”. The IRS usually accepts just about any excuse, even stating that you did not understand the requirement.
If 2016 was also an RMD year and uncle did not complete that RMD, you are also responsible for completing his 2016 RMD, and if so you also need to file a 2016 5329 to request the waiver. You can send in the 2016 and 2017 5329 forms together. Might take some work to determine what his 2016 RMD was and if it was distributed. You will probably need to find out his exact DOB and DOD.