Failure to take RMDs on Roth IRA
I have recently become the attorney in fact for a cousin who has beginning dementia and is now in assisted living. Although he filed his own income tax returns, I found from documents scattered about his home that he is the beneficiary of his deceased sister’s Roth IRA, but that he has never transferred it to his name or taken an RMD. She died in 2013. Unless he can get some relief from IRS, I understand that he will owe a 50% penalty on the whole amount, which should have been distributed to him within 5 years (obviously he did not elect to stretch it out ). Does anyone have any feeling for the circumstance for which IRS will give relief from the penalty? Is there any reason not to go ahead and have the brokerage company notified of the sister’s death and all the money belatedly distributed to him?
Permalink Submitted by Alan - IRA critic on Tue, 2020-03-03 03:19
Depends how much is in this account. Her Roth IRA probably defaults to life expectancy RMD, and the 5 year rule would not even be an option unless sister passed prior to her RBD. We do know that all distributions from this account will be tax free, and that penalty waivers will always be granted for the late years with a dementia diagnosis, but it takes some work to file a 5329 for 2014-2019 to request the waiver because you would have to calculate what the RMD would have been each year, and that requires knowing each year end value. Let’s start with sister’s age at end of 2013 and rough estimate of the current value of this Roth.