72t IRA owner death | Ed Slott and Company, LLC

72t IRA owner death

56 year old Individual has been taking monthly 72t distributions since 10/6/2015. Unfortunately the IRA owner is now recently deceased . The Spouse is the beneficiary of the IRA. Will the 72t distributions have to continue or can they be stopped since the IRA will be transferred to her? Thank you

The 72t plan ends upon the individual's death. On their 2019 joint return Form 5329 will still have to be filed to claim the penalty exception for distributions made prior to death. The current monthly distributions should be stopped until spouse re titles the IRA and if surviving spouse is under 59.5 the IRA should be continued in beneficiary format. Any distributions desired will avoid penalty due to the death distribution code 4 on the 1099R.

Alan, The withdrawals have been stopped as of now.I am confused about the second portion of your reply. The spouse is 52 years of age and will most likely need to continue taking payments, but she is undecided at this point since the death was sudden. Should she open an IRA and have the assets transferred to her and then begin a 72t from that account or how should it be titled to receive non-penalized withdrawals without establishing a 72T? Could you provide the options she has at this point (If she wants to conitinue withdrawals and if not)? Thank you for your response and your knowledge is greatly appreciated. 

The inherited IRA should be titled to show the name of the surviving spouse as beneficiary of the deceased spouse. There will never be a penalty on any distributions she takes so there is no need for her to start another rigid 72t plan. When she reaches 59.5 she can roll the inherited IRA over to her OWN IRA and can continue to take any distributions she wants without penalty because she will then be over 59.5. If she wants to continue the same amount for her distributions she can and because the 72t plan has ended she can take out whatever amount she wishes whenever she wishes. Of course, she will owe ordinary taxes on all distributions. As for RMDs, she will not have to take an RMD until deceased spouse would have reached 70.5, and before then she will have elected to assume ownership of the inherited IRA. As the eventual owner her RMDs will start when she reaches 70.5. Finally, there is no special reporting with respect to the end of the current plan. The only reason to initially stop the payments is to avoid having checks issued to the decedent and coded as early distributions. When she has retitled the account as the beneficiary she can start up her own payment schedule or maybe just request random payments as needed for awhile.

Can anyone be named a beneficiary of an account under 72t distribution and not necesarlily a spouse?  Assume children, what are their options with an inherited account which was under 72t distribution rules?  Thank you

Yes, anyone can be the beneficiary, but if married the spouse will probably have to sign a waiver in community property states if someone else is to be the beneficiary. If a child inherits a 72t account, the 72t plan ended at death but the children will receive death distributions (code 4 on 1099R) so they will be exempt from any early distribution penalty, but will still have to take their beneficiary RMDs as usual.

Would the RMD be based on the child's age or the deceased age and life expectancy?  Suppose the dceased parent was only 60 years old.  Thank you.

Child's beneficiary RMD would be based on their own life expectancy and Table I. The age of the IRA owner at death has no bearing on this unless the child inherits through the estate or a non qualified trust.  If there were multiple beneficiaries, the child will have to create a separate inherited IRA by 12/31 of the year following the year of death or other factors come into play when calculating the RMD.

 

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