Inherited IRA Problem | Ed Slott and Company, LLC

Inherited IRA Problem

I have a situation with a new client. Dad passed away June 2000. He was under age 70. Son inherited the IRA. Son never took any or very little distributions over the past 7 years. What kind of problems does he have? I assume the IRA could have been streched out over the Son's life, or taken out within 5 years. Neither of these options were taken and the deadlines are past. What options are left? Thanks Duane Yoder

There are no good options left. Back in 2000, the 5 year rule was the default rule, and when the 2002 RMD provisions were issued, those currently under the 5 year rule were allowed to elect life expectancy no later than 12/31/03. Since life expectancy was not elected, and the 5 year period has elapsed, all he can do is to drain the IRA, and request that the 50% excess accumulation penalty be excused on Form 5329 for 2005. THe IRS should be provided with evidence that the account has been distributed when the penalty waiver is requested, and the reason for the oversight should be stated.

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