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Inherited IRA - RMD and 10yr Rule

Forum|Forum|2 years ago
February 13, 2024
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My wife inherited Traditional IRA when her mother (dob 03/1933) passed away on 08/2014 (81 yrs at the time). My wife was 51 yrs at the time on 08/2014 and had been receiving RMDs since then. For some reason, the bank did not send an RMD during 2023. We are trying to find out why. Is there a penalty and who is responsible for the penalty? Does this IRA fall under the 10 yr. rule since it looks like it would be this year 2024? Can it be rolled over or have to withdraw it? Would the withdrawal be taxed at our current tax rate? Thank you

Best answer by dmertz

The 10-year rule does not apply since your wife's mother died before 2020.

The late 2023 RMD must be completed now and will be 2024 income along with the 2024 RMD to be competed by the end of 2024. With the 2023 RMD completed, albeit late, a waiver of the excess accumulation penalty can be requested on 2023 Form 5329 as indicated in the instructions for Part IX of Form 5329.

While 2023 TurboTax can prepare the Form 5329 for inclusion in an e-filing of your tax return, TurboTax makes it almost impossible to do so when the individual requesting the waiver is under RMD age as in this case. It might be simplest to prepare the 2023 Form 5329 outside of TurboTax and include it with a paper-filed tax return. The 2023 Form 5329 requesting the waiver can also be prepared in forms mode of the CD/download version of TurboTax, but it could get deleted if one revisits the 1099-R section of TurboTax after doing so, so one has to be very careful when doing this.

D

dmertzAnswer

Employee

The 10-year rule does not apply since your wife's mother died before 2020.

The late 2023 RMD must be completed now and will be 2024 income along with the 2024 RMD to be competed by the end of 2024. With the 2023 RMD completed, albeit late, a waiver of the excess accumulation penalty can be requested on 2023 Form 5329 as indicated in the instructions for Part IX of Form 5329.

While 2023 TurboTax can prepare the Form 5329 for inclusion in an e-filing of your tax return, TurboTax makes it almost impossible to do so when the individual requesting the waiver is under RMD age as in this case. It might be simplest to prepare the 2023 Form 5329 outside of TurboTax and include it with a paper-filed tax return. The 2023 Form 5329 requesting the waiver can also be prepared in forms mode of the CD/download version of TurboTax, but it could get deleted if one revisits the 1099-R section of TurboTax after doing so, so one has to be very careful when doing this.

T

tuneman01Author

So in my 2023 Turbo Tax return do I completely remove the IRA/RMD entry that I normally have or do I leave it in there and report zero dollars received? Thank you

D

dmertz

Employee

Good question! I hadn't thought about it before, but having the Form 1099-R present will cause TurboTax to ask if the RMD was completed, allowing the Form 5329 requesting waiver of the excess accumulation penalty to be completed within TurboTax. However, a Form 1099-R being present that reports a distribution of less than $0.50 (which rounds to zero) disallows e-filing. You might consider entering $1 in boxes 1 and 2a instead of $0. Just make sure that there is no tax withholding shown. The IRS isn't going to complain about your tax return showing an extra $1 on line 4b of Form 1099-R. Sounds like a good workaround to me.