50% Excess accumulations tax

Son died in 1999 age 57 with no will. Mother is the only survivor (age 91 in 1999) and becomes beneficiary of Son’s IRA.

Mother dies in 2003 with no will. Mom’s estate became beneficiary of IRA. No IRA distributions were made to mom and no distributions have been made since mom’s death.

Per IRS publication 590 mom should have taken RMD over 5.2 years or taken the total within 5 years of son’s death. Is the 50% excess accumulations tax applied to every year there is no dist made (i.e. years 2004 – present) or just year 2004 (end of 5 year period from Son’s date of death)?



Since it is highly unlikely that the IRA agreement would name the Mother as a default beneficiary, I will assume that his estate was the actual default beneficiary and therefore the 5 year rule applies. The excess accumulation penalty would therefore be a one time 50% of the entire account balance as of 12/31/04 with only interest on the penalty accruing since that time.

The estate executor should immediately distribute the entire balance, and may wish to request a waiver of the penalty using the instructions on p 6 of Form 5329. With two parties passing intestate, the IRS may consider the obvious delay and probate activity to constitute reasonable cause and excuse the penalty. The actual wording would be based on the actual circumstances as they developed here.



alan-oniras:

Thank you for the reply. Would it matter if the Mom was the designated beneficiary on the Son’s IRA? Also is there a reference you can give that states the 50% tax is only for that one year? Thanks.



Sorry, I thought the mother “became” beneficiary through probate rather than being named on the IRA agreement. This case departs considerably from the usual situation.

Being named on the agreement, the 4.9 divisor would apply assuming she turned 92 in the year following son’s death. However, the IRA agreement likely provided for either a default or elective 5 year rule since the owner passed prior to the required beginning date. Having not elected life expectancy distributions by 12/31/2000, she still ends up under the 5 year rule, and her death in 2003 would not change that.

We end up with basically the same situation with respect to the excess accumulation penalty even with Mother being a named beneficiary of the IRA.



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