Non Spouse Inherited IRA Question
I have a divorced couple in which the ex-husband died in 2016. The beneficiary on the account still had the ex-spouse as primary beneficiary. However the divorce decree indicated that the beneficiary should have been changed. The deceased individuals Mother, took the ex-wife to court on this issue.
This ROTH IRA account was held directly at a Mutual Fund company. Once this issue was settled, in June of 2020, the account was transferred into an Inherited IRA for the surviving ex-spouse at the Mutual Fund company. The paperwork for this transfer was completed by the ex-spouse and her attorney, after which I became the agent of record.
My question is, “as the death occurred in 2016, can we elect a life time stretch (however, no funds were taken out of this for 2017, 2018 and 2019). Or would we be looking at having to apply the ROTH 5-year rule beginning on the date of death April 23, 2016 (date of death) therefore, we would be needing to withdrawal by April 23, 2021.
I did contact the Mutual Fund company however, they did not have any RMD instructions on file and they do not have any advanced planning Attorneys and therefore said they would not be able to advise. Any help or guidance would be greatly appreciated
Permalink Submitted by Alan - IRA critic on Fri, 2021-02-12 02:26
Almost all IRA contracts specify life expectancy as the default beneficiary RMD method, and in IRS PLR 2008 11028, the IRS permitted a beneficiary who had missed RMDs to “restore the stretch” by making up the missed RMDs. That letter ruling required the beneficiary to pay the 50% excess accumulation tax for the missed RMDs however in recent years beneficiaries have been able to make up the missed RMDs and file a 5329 requesting a waiver of the penalty. The IRS has been granting these waiver requests. Therefore, I suggest that the late RMDs be made up and 5329 forms filed for 2017-2019 requesting the waiver and attaching a note indicating that the RMDs were late due to the account being tied up in litigation and had not been awarded to the beneficiary. The Roth is qualified by now and all these RMDs will be tax free. Form 8606 is not needed to report them and the total distribution only needs to be shown on line 4a of Form 1040. Then proceed as usual with the 2021 RMD and beyond.