RMD from Inherited regular IRA by daughter

Submitted by alberto vega on Mon, 2018-10-29 00:29

Mother (M) dies at 85 on July 7, 2016. M has taken all RMD required. Daughter (D) inherits traditional IRA with deductible contributions value $70,000 at 12/31/16

D (married files separately–no other dependents) age 51 in 2018, did not take RMD in 2017 or still for 2018.
Questions:

1. D should take RMD for 2017 (based on 12/31/16 balance) and RMD for 2018 also based also on 12/31/16 balance? Assume is done Oct 31, 2018.
2. D has very low income in 2018. But at least $9,000 in real estate taxes and $22,000 in residential mortgage interest Consequently D wants to convert IRA to Roth IRA in 2018 (after RMD’s are taken as above)
3. If Roth conversion is done Nov 15, 2018, is the principal balance as of then in the converted Roth IRA tax free to D forever?
4. How are the earnings in the converted Roth taxable to D from A) Before October 31, 2018 B) from Oct 31, 2018 to Nov 15, 2018 C) from Nov 16, 2018 to Dec 31, 2018
and D) Thereafter from Jan 1, 2019 until all interest is taken out.

A. Separate question. Can the earnings from a contributed or converted (not inherited ) Roth IRA ever be tax free to the initial contributor if it waits 5 years after contribution. How? Forms to be filed to report when withdrawn?



Submitted by Alan - IRA critic on Mon, 2018-10-29 02:03

  1. Yes, D should take both the 2017 and 2018 RMDs as you indicated except that the 2018 inherited IRA RMD is based on the 12/31/2017 balance. D should also file Form 5329 for 2017 requesting waiver of the penalty for missing the RMD. D should cite a “reasonable cause” for the omission and state that the 2017 RMD has now been distributed.
  2. 2-4 A non spouse inherited IRA cannot be converted.
  3. Q A –  Earnings on a Roth IRA contribution become tax free when 5 years has passed from the first Roth contribution AND taxpayer is age 59.5. Such a “qualified distribution” is reported directly on Form 1040 on new line 4a, and Form 8606 is not needed.

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