Question

Inherited IRA Beneficiary - No RMDs taken

Forum|Forum|5 years ago
June 17, 2020
2 replies
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Hello Tax Experts!

My dad passed in 2012 (age 84), but I didn't receive his inherited IRA (traditional) until July 2015. I thought RMDs were all based on the living person's age (I'm not 65 or 70 yet!), so I just let the account sit as is.

My mutual fund company alerted my that RMDs need not be taken for 2019 (CARES Act), which prompted me to ask why I was alerted of this (thinking I hadn't hit the milestone years).

Given my situation, what is the best method for fixing my errors, and if I need to withdraw, how do I know how much?

Thank you in advance!

macuser_22

Employee

The RMD requirement is based on the age the deceased would be if still alive. The financial institution holding the IRA had a duty to inform you of the RMD amount each year. Also when you entered the 1099-R with a code 4 and the IRA box checked, the interview would prompt you for the year the decedent was born and then ask about if the RMD was taken.

You have a problem now because there is a huge 50% penalty for each missed RMD which the IRS can waive if you request a wavier and provide an reasonable explanation as to why it was missed.

First you need to have the IRA custodian calculate the RMD amount for each missed year and then take a distribution of the total missed RMD's ASAP.

Then you need to file a separate 5329 form for each missed year along with the explanation. Be sure to say that you have taken the shortfall.

You can get past years 5329 form here:

https://apps.irs.gov/app/picklist/list/priorFormPublication.html;jsessionid=K2afqLmfMnkOhovlwx7KAyGt.20?value=5329&criteria=formNumber&submitSearch=Find

From 5329 instructions:
Quote:
"Waiver of tax. The IRS can waive part or all of this tax if you can show that any shortfall in the amount of distributions was due to reasonable error and you are taking reasonable steps to remedy the shortfall. If you believe you qualify for this relief, attach a statement of explanation and file Form 5329 as follows.
1. Complete lines 52 and 53 as instructed.
2. Enter “RC” and the amount of the shortfall you want waived in parentheses on the dotted line next to line 54. Subtract this amount from the total shortfall you figured without regard to the waiver, and enter the result on line 54.
3. Complete line 55 as instructed. You must pay any tax due that is reported on line 55.
The IRS will review the information you provide and decide whether to grant your request for a waiver. "

Enter zero on line 55 - do not pay the penalty. In the unlikely chance the IRS denies the waiver they will send a bill.

**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**

T

Tami71Author

Thanks to both macuser_22 and HACKITOFF for your responses. You both are providing me invaluable information.

I found more records dating further back (2013) and found a 1099-R that was issued by Schwab, which probably was my first go-to investment firm to receive the money under the rush I felt. I now vaguely remember moving the $$ to a mutual fund firm in 2015.

I pulled up my 2013 tax records and found a 1099-R from my dad's annuity company that was filled - Box 7 included a code 4G and a checked IRA box. Unfortunately, my dad moved all his funds to this money-sucking annuity firm without my knowledge and too early for me to help him.

I've looked through all their correspondence to see if they had issued information about RMD responsibilities. I have no records receiving this information. Because of my distrust of their approach, I saved all records from them.

Because there were no directions related to this 1099-R, I assumed withdrawals fell according to my age and didn't even think I had obligations unless I made a withdrawal.

Should I go back to this firm or should just proceed to resolve with filing with the IRS? Based on some other questions related to this topic in the community section, it appears that I needed to pull all the money within a five-year timeframe, which has passed. Ugh.

What would you recommend as next steps that would protect me as best as possible? I feel I need more information to determine what to do and how to file for a waiver - but I'm still feeling there are gaps in what I need to know.

Again, thank you both for your help!

macuser_22

Employee

A code 4G would indicate an inherited employer plan such as a 401(k) that was rolled into an inherited IRA. If the IRA/SEP/SIMPLE box checked then that would be an improper 1099-R. A Traditional IRA can never have a code 4G. The IRA box and code 4G are not comparable.

Since you mentioned an annuity then unless it was a qualified annuity held within an IRA it could not be t to in IRA. In any event an inherited IRA can only be trustee-to-trustee transferred to a benificuary IRA held in the deceased name with you as beneficiary.

RMD's on annuities held within IRA can be very difficult to calculate (if that is what it is) but that is not clear.

User @dmertz any suggestions?

**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**

A

Anonymous

your dad was required to take an RMD in 2012. if he didn't the beneficiary was required to take it. can you explain why you did not"inherit" the IRA until 2015? IRAs have a designated beneficiary and many have a secondary beneficiary in cases where the owner and primary beneficiary die.

for 2012 if dad did not take an RMD for that year, the beneficiary should have taken it.

the rules for RMDS in subsequent tears would be based on the rules in effect in 2012.