Estate as beneficiary
Taxpayer died in 2002. It was discovered in 2018 the existence of an IRA with the estate as the beneficiary. Taxpayer had not reached the age for required minimum distributions at the time of death. Therefore the balance in the IRA should have paid out to the estate within five years, which of course did not happen. Is a form 5329 and attached penalty waiver request required for each of the intervening years from 2007-2018? How is the best way to resolve this situation?
Permalink Submitted by Alan - IRA critic on Wed, 2019-05-01 18:47
According to noted authority Natalie Choate, because an IRS Reg requires 100% of the account to be distributed in 2007, and if not done in each year thereafter, the 5329 should be filed for each such year 2007-2018 except for 2009 when RMDs were waived by Congress. To complete each year’s form the year end balance (current year) is needed since that is the amount that had to be distributed. Once the beneficiary liquidates the inherited IRA, and wants to abbreviate the process because each year end value cannot be attained even with custodian’s assistance, the 5329 for each year could probably show the value actually distributed this year, with an explanation included in the reasonable cause statement. That statement will be the same for each year. The IRS will almost certainly waive the penalty.
Permalink Submitted by DOUGLAS THORNTON on Tue, 2019-05-07 15:02
I’m wondering at what point it would be safe to make a distribution to the beneficiaries. It seems there is a potential liability for the penalty. Does the IRS typically respond to the 5329 filings?
Permalink Submitted by Alan - IRA critic on Tue, 2019-05-07 15:34
Sometimes they do and sometimes they don’t. No news is good news but it does keep the taxpayer in the dark. When the IRS does confirm acceptance, it will probably be several months after the 5329 is filed as the IRS may want to look at the 1099R confirming the distributions were made, and these are issued in the January following the distributions. Doing the research in order to be able to file a 5329 for each year after the 5 years is time consuming, but it is the only way to start the 3 year statute of limitations for those years.