Options if I didn’t take required RMDs from inherited IRA from 2007

Submitted by Roberta D’Alois on Sat, 2023-09-09 22:40

Title says it all – we really screwed up as we didn’t know they were different laws for inherited IRAs. So I haven’t been taking required RMD’s until that last year when I turned 72 and had to take one of my own

Short version – my dad died in 2007 and I received an inherited IRA in 2008. I believe I converted it to my own, but I don’t remember at all what I did back then. I had no idea that I was required to take RMD‘s once he died so the monies just been sitting there. I realize I owe money but I’m looking now for the easiest option to deal with it. I would rather not have to go back and re-file taxes from 2008 on, so if there’s a way even with penalties that I can do something relatively simpler than that I would love to know about it. I am not a high net worth person – altogether I y wife and I about $200,000 worth of stocks and retirement accounts and don’t own a home so I really really really like to avoid spending money on an accountant but if I have to I will. Reading this forum it seems like there’s a lot of knowledgeable people and I would love to get some help.

My dad was 82 when he died, and I believe had taken his RMD’s, including the one of his year of death.

I’m really anxious about this, so any advice or help would be much appreciated. As you can tell neither my wife or I are financially savvy.

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Permalink Submitted by Alan - IRA critic on Sat, 2023-09-09 23:24

There is no option to make the inherited IRA your own, so you probably correctly have it titled in beneficiary form. Annual beneficiary IRAs were due for all years starting in 2008 except for 2009 and 2020, as all RMDs were waived in those two years. Did you take a beneficiary RMD from the inherited IRA in 2022? Note that your own RMD and the inherited IRA RMD are totally separate from each other, and even use different tables to calculate them.
In the past, the usual fix for this was to calculate and make up all the missed RMDs, which would be taxable in the year you receive them, not in the prior year. But after the distribution was received, you would have to file Form 5329 for each such year requesting that the penalty be waived. The IRS has been approving these waiver requests in the past.
But now we have the new Secure Act 2.0 Sec 313 which is effective this year. It establishes a 3 year statute of limitations (SOL) on missed RMDs and uses your 1040 due date to start the 3 year period. What is NOT yet clear is whether this statute is to be applied retroactively for tax years prior to 2023. If it applies to prior years, then you are all clear up through 2021 and do not have to take any beneficiary RMDs for years prior to 2021. You could simply make up your 2021 beneficiary RMD, file Form 5329 requesting the penalty waiver and be done with this. Therefore, at this point I suggest you wait until the IRS provides some clarity if the SOL applies retroactively to prior years or just starts in 2023. But you should still calculate the 2021 RMD, and 2022 if you did not take it, and request those amounts to be distributed. You can add your 2023 beneficiary RMD if you also want to get that out of the way.
Then monitor the IRS guidance or post back here periodically to see if the IRS has clarified the effective year of the new SOL, and hope it applies to prior years.
If you need help with your 2021 and 2022 divisors, please advise.

Permalink Submitted by Roberta D’Alois on Sun, 2023-09-10 00:43

Am I missing something? You indicated you weren’t sure that they filed a ruling but all the other pages I read, said that we can assume that’s the case.

Permalink Submitted by Alan - IRA critic on Sun, 2023-09-10 02:14

Assume that the 1040 SOL is retroactive to prior years? Not sure how anyone can be sure until the IRS clarifies this.

Permalink Submitted by Roberta D’Alois on Sun, 2023-09-10 04:35

Even if I have to wait for IRS ruling? Or does waiting fir the retroactive ruling mean I am better off waiting in case I don’t have to take the whole amount?

Permalink Submitted by Alan - IRA critic on Sun, 2023-09-10 17:32

Yes, there is a good chance you can avoid making up those older RMDs, since the IRS may clarify that this provision is retroactive to prior years. However, you should complete the 2021-2023 beneficiary RMDs and file a 5329 for 2021 and 2022 (if late) to request the penalty waiver. Then, if the IRS indicates that the Form 1040 SOL is NOT retroactive, you will have to make up those older missed RMDs.

Permalink Submitted by Roberta D’Alois on Sun, 2023-09-10 18:14

The ira is 38,768 and was established in 2008. i am73 and will be 74 next month.

Permalink Submitted by Alan - IRA critic on Sun, 2023-09-10 19:44

Your 2021 beneficiary RMD divisor is 11.1. Divide your 12/31/2020 IRA balance by 11.1 for your 2021 RMD.Your 2022 beneficiary RMD divisor is 13.0. Divide your 12/31/2021 balance by 13.0 for your 2022 RMD. Your 2023 beneficiary RMD divisor is 12.0. Divide your 12/31/2022 balance by 12.0 for your 2023 RMD. Reduce this divisor by 1.0 for each year after 2023.

Permalink Submitted by Roberta D’Alois on Sun, 2023-09-10 19:46

I can’t tell you how much I appreciate all your responses. I wish I could buy you a cup of coffee.

Permalink Submitted by David Mertz on Sun, 2023-09-10 20:03

I get 13.1 for the 2021 RMD factor: For age 59 in 2008, the factor from the old table is 26.1. Subtract 13 (2021 minus 2008) to get 13.1.
Also, I get 14.0 for the 2022 factor: For age 59 in 2008, the factor from the new table is 28.0. Subtract 14 (2022 minus 2008) to get 14.0.

Permalink Submitted by Alan - IRA critic on Sun, 2023-09-10 20:39

I agree. Use the divisors posted by DMx for 2021 and 2022. Also, correct the 2023 divisor to 13.0. Shoudn’t do these when watching NFL!