Inherited IRA RMD/penalty question
My grandpa died Dec 26, 2017. He was 87. Among his assets was a Traditional IRA. The IRA did not designate a beneficiary other than his estate. A probate case was filed and the executor (not me) gathered the assets, including the IRA (executor did nothing with the IRA other than title it in estate’s name until distribution to me) Due to how long probate cases take, I will not actually receive any of the assets, including the IRA until Feb 2019.
Based on the inherited IRA non-spouse rules, and since the beneficiary was not a person, I have to do 5 year withdrawal, lump sum, or the life expectancy of my grandpa (which is basically 5-6 years based on the tables.)
However, my concern is that no RMD will have been taken in 2018. I planned on withdrawing the balance within 5 years of his death. Does choosing the 5 year option waive the 50% penalty? If not, can I get a penalty waiver, as I had no control over the account in 2018?
Permalink Submitted by Alan - IRA critic on Mon, 2018-11-05 23:20
The 5 year rule does not apply for deaths after the RBD, however as you indicated the remaining life expectancy of grandpa is hardly any longer. I assume the executor is assigning your share of the IRA to you as an inherited IRA, but that does not change the distribution period. The estate was responsible for completing the 2017 RMD if grandpa did not complete it, and the 2018 beneficiary RMD for the estate (divisor 5.7). If the executor did not take these RMDs, then you will have to take your share. If you were the sole estate beneficiary, you will get a K 1 if the estate took out RMDs for one or two years, and you will also have your 2019 RMD, all as taxable income in 2019. Do not worry about the penalty waiver, since a properly filed 5329 for 2017 (if necessary), and for 2018 (filed by the estate) will almost certainly result in the IRS waiving any penalty. RMDs must be brought current for any year the 5329 waiver request is being filed.