Non Spousal IRA beneficiary
– IRA account owner dies at age 65 in 2017
– Non spousal beneficiary age 69 inherits account and funds placed at his bank
– No distributions taken after inheritance (claims he was not notified by bank of LEP requirement) – beneficiary now age 74.
QUESTION:
Does beneficiary now need to empty the account at year 5, or…
Is there an argument to take past distributions (mea culpa since bank did not inform of requirement) and the remainder annually based on beneficiary’s life expectancy?
Appreciate your input.
Permalink Submitted by Alan - IRA critic on Sat, 2022-08-13 00:22
Yes, according to PLR 2008 11028, a beneficiary may be able to “restore the stretch” by making up the missed annual RMDs, and then continue LE RMDs from there. While the applicant in 2008 had to pay the excess accumulation tax for the late RMDs, since that time the IRS has been accepting a Form 5329 penalty waiver. Almost all IRAs use life expectancy as the default method in their contracts. If the beneficiary wants to avoid the 5 year rule, they need to determine the 2018, 2019, and 2021 life expectancy RMDs and request a distribution of that amount, taxable in 2022. They would also have to file the 5329 for those 3 years requesting the penalty waiver for reasonable cause. They would then reset the divisor for 2022 using the new RMD tables and also take their 2022 RMD before year end. They will get a 1099R combining all these distributions, reported as taxable income in 2022. If this added detail is a problem, they can instead drain the account by 12/31/2023 under the 5 year rule. An extra year was added by the CARES Act due to the 2020 RMD waiver.