Inherited IRA and missed RMDs

Submitted by John Cooney on Sun, 2020-12-27 19:54

I have a client who inherited an IRA from a non-spouse who passed away in 2017. He received advice to not take RMDs and just have all funds out of the account by then end of 5 years. He is young, in his early 30s and not sure why that would have been the better option for him than using the stretch. My question is can he still do the stretch? If we take a withdrawal in 2020 (or 2021) that accounts for his 2018/2019 RMDs (2020 is waived due to Covid) and he pays the 50% penalty for missed RMDs, can he then resume taking RMDs in 2021 and forward?

I can’t seem to find any IRS regulation that would not permit this. Thanks!



Submitted by Alan - IRA critic on Sun, 2020-12-27 22:02

  •  Almost all IRA agreements state that life expectancy is the default option, and the IRS in PLR 2008-11028 found that a beneficiary who neglected to take the LE RMDs from a LE default method IRA account could “restore the stretch” by making up the delinquent LE RMDs that were missed and then proceed with that method. 
  • However, there is a gray area when an overt election into the 5 year rule is made by the beneficiary since it is not clear whether that beneficiary can later change their mind and apply the above PLR.  I have not heard of any IRA custodians forcing a full distribution after 5 years to a beneficiary who made a specific election into the 5 year rule or of the IRS commenting on this situation. Therefore, client will probably not have a problem if he makes up the late RMDs and changes to the LE method.  In addition, the client will likely be able to successfully request a waiver of the punitive 50% excise tax by filing Form 5329 for each prior missed year.  In this case, a 5329 will be needed for 2018 and 2019 only.
  • I an assuming that the IRA owner passed prior to their RBD, since the 5 year rule only applies in such cases.
  • The Secure Act largely eliminates this issue going forward, since the 10 year rule will apply regardless of when the IRA owner passes.

Submitted by John Cooney on Mon, 2020-12-28 02:29

Thank you so much for the reply.

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