5-Year Rule on 6th Year
A new client has come to us with an IRA titled to the estate of her deceased mother. Mom passed in Dec. 2012. The estate docs directed the IRA to the client, and should have been moved to a Beneficiary IRA in the client’s name, but never was.
The current IRA in the estate’s name does not list a beneficiary, only the client as “executor.” My understanding is that since the account was never re-titled or moved, the 5-Year rule applies. Further, the 5-year rule starts the year of death, so a complete distribution should have occurred in 2017. There have not been any distributions from this account.
Are there any other options for the client at this point, beyond a full distribution, tax and penalty?
Permalink Submitted by Alan - IRA critic on Thu, 2018-11-15 21:24
Need mother’s age at end of 2012.
Permalink Submitted by Nick Hatfield on Thu, 2018-11-15 21:30
Mom (step mom) was 68 at passing
Permalink Submitted by Alan - IRA critic on Thu, 2018-11-15 22:08
Then she passed prior to the required beginning date and the 5 year rule does apply and inherited IRA should have been drained by end of 2017. The executor of the estate could assign the inherited IRA to the client and then client could take a full distribution (taxable in 2018). Client could file a Form 5329 for 2017 and request that the IRS waive the penalty, which they almost always will. See the last page of the 5329 Inst for how to fill out the 4 lines of the 5329, because what goes on the lines is not intuitive. So there should be no penalty, but there is no escaping the income tax.