Missing RMDs on Inherited IRAs
60 year old passed away in 2018 and left a $150k IRA that was split between 3 children in their 30’s. They didn’t take RMDs in 2019-2022. I know there’s an option to switch to 5 year distribution to avoid penalties, but when I add up the RMDs and penalties, it’s much less than just paying tax now on $50k (the approximate amount of the IRA). Is it worth the hassle of having them pay the RMDs and penalties, having CPA file various forms vs. just paying out the IRAs now? All three children are in relatively high tax brackets and don’t need the funds.
Permalink Submitted by Alan - IRA critic on Mon, 2022-11-07 18:49
2020 RMDs were waived, leaving only the 2019 and 2021 RMDS as late at this time. IRS normally waives the penalty with properly filed 5329 forms after the late RMDs were made up. Each child’s cash needs and tax situation differ, so each one should make their own decision regarding the 5 year rule, which will require full distribution by the end of 2024 (2020 is not counted). This could be done by using 3 tax years to drain the account, and would avoid the 5329 filings.