PLR 200811028
Just read PLR, since being on Spring Training sojurn for 5 weeks. This is good news, for those that get bad (or no) advice regarding a stretch possibility. The ruling was for a decedent dying prior to their RBD. Is there any reason not to expect a similar result for someone dying on or after RBD? It seems that would even be more likely, since the 5-year rule could not have even been an option!
Permalink Submitted by Bruce Steiner on Thu, 2008-04-03 16:18
In PLR 200811028 http://www.irs.gov/pub/irs-wd/0811028.pdf , the IRA owner died before the required beginning date. The beneficiary failed to take the first distribution by the end of the year following death. The issue was whether that destroyed the stretchout, and forced the beneficiary to take the entire IRA within 5 years.
The IRS explained that under the new (2002) regulations, the IRA agreement can say whether the 5-year or the life expectancy rule applies, can allow the beneficiary to select, and can specify a default. If the IRA agreement does not specify, then the default is the life expectancy method. If (as is likely) the life expectancy method applies, then the IRS said that beneficiary’s failure to take the first year’s distribution does not destroy the stretchout, though (absent a waiver) the beneficiary will have to pay the 50% penalty for the missed distribution. That’s a small price to pay for the stretchout.
If the IRA owner dies after the required beginning date, then the alternative to the beneficiary’s life expectancy is the IRA owner’s life expectancy as of the IRA owner’s death (as if he/she had not died). While private letter rulings are not binding on the IRS except with respect to the taxpayer to whom they are issued, I would expect the result to be the same in the case of an IRA owner dying after life expectancy.
Bruce Steiner, attorney
NYC
also admitted in NJ and FL
Permalink Submitted by Alan Spross on Thu, 2008-04-03 16:46
Al,
I was wondering where you went – that’s spring training, not spring break with the college crowd, right? 🙂
The PLR is a welcome clarification of a situation that was less than transparent in the past. It would be a relief in most cases, particularly since there are so many failures to take the first life expectancy RMD. The excise tax may well be waived as well following a 5329 filing, since the IRS has been very flexible with what constitutes a reasonable cause.