Client inherited an inherited IRA from her husband. Neither took RMDs.
Client’s mother-in-law (born 1/12/36) passed away on 7/25/14. Client’s husband (born 3/19/62) inherited his mother’s IRA. Husband passed away on 4/23/17. Client then inherited the same IRA from husband. Nobody took RMDs. What are the ramifications of this, and are there any remedies?
Not sure it matters, but the client moved the IRA away from the original custodian in 2022. She thinks the new custodian registered the IRA as an inherited IRA from her late husband only (spousal inherited). Is this even an option, or did the new custodian simply create the account incorrectly?
Permalink Submitted by Alan - IRA critic on Thu, 2024-08-01 17:44
Client’s husband should have taken life expectancy RMDs, but the IRS does not pursue decedents. Successor beneficiary client should have continued the RMD schedule husband should have been using and was responsible for completing his beneficiary RMD for 2017, as he did not. Continuing to reduce the divisors he should have been using by 1.0 each year, she should have taken RMDs in 2018 and 2019. 2020 RMD was waived by the CARES Act, but should have resumed in 2021, and the divisor should then have been reset starting in 2022 due to new tables taking effect in 2022. Client’s age is irrelevant.
Registering the inherited IRA showing “(client name) as beneficiary of (husband name” or similar is proper, but of course she cannot assume ownership of it because husband was not the original owner. So 7 years of beneficiary RMDs are due and the prior year end balance is needed for each year to compute these. There is no statute of limitations for any of the pre 2022 missed RMDs, but the IRS makes no effort to monitor beneficiary RMDs, so there is little chance they would catch this without auditing the client.
The technical fix would be to calculate and distribute all the missed RMDs and file Form 5329 for each year (not 2020) to request the penalty waiver. The IRS will accept the waiver request, but the total of these RMDs will be taxable in the year distributed.