Stretch IRA
In regards to the “Stretch IRA is Saved” article in the recent newsletter, is it possible to stretch IRA distributions from an inherited IRA if the bene has not taken a distribution for the first 8 years after the date of death? The article described how a bene was able to stretch the distros out, despite missing the 1st couple of mandatory distros. The article said that the IRS did not force the person into the 5 year rule. I am wondering what happens if someone hasn’t taken a distro for 8 years. Can she still stretch the IRA?
Permalink Submitted by Alan Spross on Thu, 2008-05-08 21:44
The PLR discussed here is 2008 11028. Short answer – “probably”.
Taxpayer’s IRA contract had LE as the default provision if taxpayer passed prior to RBD. Beneficiary missed two years of RMDs and was allowed to make them up and pay the 50% excess accumulation penalty in order to preserve the option of LE distributions.
Whether this would extend to 8 years is problematical since PLRs are not binding for other taxpayers, and 8 years is substantially longer than the 2 years in the PLR. However, it is likely the IRS would allow the LE if beneficiary was willing to pay that many years worth of excess accumulation charges plus billed interest. Beneficiary would probably need to be quite young or the price to maintain LE may be too high.
Contrast that with taking the full distribution under the 5 year rule and requesting relief from any penalty due to Reasonable Cause. Merits of these choices depend on the amount of the IRA and age of the beneficiary among other factors.