This Week's Q&A Mailbag: Excess IRA Contributions and RMDs for Inherited IRAs
Director of Retirement Education
The 6% penalty applies only to the amount of the excess contribution. You will need to file the 2015 version of Form 5329 to calculate the penalty you owe, the 2016 form to calculate the penalty for 2016, and the 2017 form to tell IRS that the excess amount has been corrected and that you no longer owe the penalty. Since the penalties for 2015 and 2016 were not paid on time (with your returns filed for those years), you will also owe interest on those penalty amounts. IRS will send you notification of what the interest amount is.
Since the beneficiary of the IRA was the estate and since your mother was over age 70½ at the time of her death, all of the beneficiaries of the will must use your mother’s remaining life expectancy. You will use the Single Life Expectancy Table, look up the age your mother would have been in 2017 (age 84) – the year of her death – to get the factor to use, and subtract one from that factor to get the factor to use for 2018. For each year going forward, you subtract one again to get the new factor for that year.
For example, if the factor for 2017 was 10.2, then the factor for 2018 would be 9.2; for 2019, it would be 8.2, etc. You take that factor and divide it into the prior year-end account balance to get your RMD for the year.
It is important to get the calculation correct. If you do not take out enough each year, the penalty is 50% of what you do not take. Using your own age, as the custodian has suggested, would give you a much smaller distribution and leave you open to the penalty.
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