I inherited an IRA from my uncle in 2008, but wasn’t informed of it until a few weeks ago when his employer contacted me to ask that I close out the account. I intend to cash out the account immediately and file Form 5239 asking for a waiver, but I’m not sure if I need to file a separate form for 2014 when the account should have been emptied, or if I can just file a form for this year using the current value to calculate the penalty?
Since the 5 year rule adjusted for the 2009 waiver resulted in the total balance as the 2014 distribution, I would improvise by filing a 2014 5329 requesting waiver based on the 2014 year end balance, plus a 2020 5329 showing the balance as of the lump sum distribution date reduced by the balance that had been shown on the 2014 5329. The waiver requests would total the ending balance of the inherited IRA. You could file these together with a note of explanation. The IRS should grant the penalty waiver.
It could be an option, and might help if the IRA is large enough and the remaining LE stretch is long enough. To utilize the PLR (as expanded in practice to also eliminate the excise tax) the annual LE RMDs would have to be calculated for each year individually for 2010-2019 and the total withdrawn. A 5329 would have to be filed for each such year requesting the penalty waiver. LE RMDs could then resume in 2021. After this many years it is more critical to avoid the 50% excise tax than to extend the stretch, but despite the number of years that have elapsed, it might be possible to achieve both.
I’m not really interested in trying to stretch it, taking the lump sum now works better for me even with the tax liability, I’m mostly just worried about avoiding the 50% penalty and maing sure I file everything correctly.
The IRS will almost always grant the penalty waiver. The most critical aspect is not the reason you provide for being late as much as it is correctly completing the non intuitive 4 lines in the last section of Form 5329. Be sure to read the last page of the 5329 instructions about what goes on each line. Then include your explanation and perhaps a copy of the distribution statement showing the lump sum distribution.
Permalink Submitted by Alan - IRA critic on Sun, 2020-07-26 01:07
There is no detailed IRS guidance on this question. Did uncle pass prior to his RBD, and is this an IRA or other employer plan?
Permalink Submitted by AZira on Sun, 2020-07-26 01:14
It’s a conventional IRA that was offered through his employer, and he hadn’t reached the RDB when he died.