5 year rule…
My client’s sister died at the age of 91 and taking RMD’s from her TIRA prior to death. My client is being told from her bank that she can use the 5 year rule liquidate the new Beneficiary IRA. I thought that the 5 year rule only applies if the previous account owner died prior to taking RMD’s?? Does my client have the choice of the 5 year rule or single life expectancy given that her deceased sister was over 70 1/2?
Permalink Submitted by Anonymous (not verified) on Tue, 2010-06-15 20:47
The bank rep is wrong, you are correct. 5-year rule does not exist past RBD date.
If the sister is younger than the IRA owner, the only option is LE rule under her LE
FYI: had she been older, the IRS does allow the longer of the two; thus her deceased sister’s LE.
I assume the sister is 100% primary beneficiary?
pko
Permalink Submitted by Charles Beckett on Wed, 2010-06-16 21:23
I have a client who is 81 years old who plans to convert a traditional IRA to a Roth. Will he have to wait 5 years to take a withdrawal without a penalty.
Permalink Submitted by Edward Czapor on Wed, 2010-06-16 22:08
No, the 10% penalty does not apply after reaching age 591/2, so he can withdraw any amount without penalty. However if this conversion establishes his first Roth, any earnings withdrawn would be taxable within the 5 year period starting with the conversion year to him or his beneficiaries.
Permalink Submitted by Alan Spross on Wed, 2010-06-16 22:24
Just a comment – converting at 81 in most cases should factor in estate planning considerations as a major consideration. In other words, when a taxpayer is young and in good health conversion decisions should be made 100% based on the taxpayer’s own tax planning. Eventually, estate planning considerations become an ever larger portion of the equation. By their 80’s, in most cases but not all, it will have become the more important part of the analysis even if the taxpayer remains in good health.
Another consideration at this age – does client have long term care insurance or are they self insured, meaning that these massive expenses would create large deductions under which direct distributions from a TIRA to pay for them would be mostly matched by a medical deduction…….