Catching up beneficiary IRA RMDs

[David Samuel Barr]

Taxpayer has a beneficiary IRA inherited
when father died in 2017. Never told his
preparer about this until now and never
took an RMD from it until now; probably
assumed it wasn't necessary until he
turned 72 last October but even then took
RMD only from his own IRA and not the
beneficiary one.

It would seem that this IRA is covered by
the pre-SECURE "Stretch IRA" rules of
computing RMDs on the beneficiary's life
expectancy factors, although there's a
question as to whether failure to take
RMDs to date might somehow subject the
IRA now to the SECURE 10-year clearout
rule instead (though I'm not finding
anything to support that idea).

Either way, best step now (for 2023)?
1) Take accumulated RMD this year to
include prior missed 5 years based on
Stretch?
2) Take initial RMD now based on
Stretch as if first one, disregarding
missed years?
3) Take 60% of IRA now, assuming it
has to be cleared out by 2017 under
SECURE?
4) Some other option?

Thanks for any insights.

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[David Samuel Barr]

Thanks, but let's get a couple of things
clear: I'm not the taxpayer, it's not my
father's IRA. I'm a CPA (since 1978) and
member of this group since 1998; I was
approached by the taxpayer's volunteer
preparer looking for advice on this and
while I did initial research and largely
came up with what you said below since tax
is not my primary practice specialty I
tossed the question out to the group with
the hope that some of the regulars who
might have had more experience with similar
situations might have a better solution
than making the taxpayer simply fall on
his 5329 sword as you propose. (I've had
to do 5329s for single years for clients
when a custodian failed to follow the
automatic distributions order previously
set up by an IRA owner and the IRS has
let those slide but I don't see them
letting five years worth of missed RMDs
go just because of an owner's ignorance
of the beneficiary rules [ignorance of
the law is no excuse etc].)

On 3/25/2023 2:30 AM, Smart Bean wrote:
> Well, first off, it's important to sort out the situation with the
> inherited IRA and the missed RMDs. Here are some steps you can consider:
>
> 1. First, let's figure out the applicable rules for your inherited IRA.
> Since your father passed away in 2017, the pre-SECURE Act "Stretch IRA"
> rules should apply, which means that RMDs are calculated based on your
> life expectancy. The SECURE Act only applies to deaths after December
> 31, 2019, so it won't affect your inherited IRA. More details on the
> SECURE Act can be found here:
> https://www.irs.gov/retirement-plans/secure-act
> 2. Now, let's tackle those missed RMDs. You should have started taking
> RMDs from the inherited IRA the year after your father passed away. The
> best approach is to take the missed RMDs as soon as possible and report
> the issue to the IRS. You'll want to file Form 5329 to report the missed
> RMDs and calculate the 50% excise tax on the missed amounts. However,
> the IRS may waive the penalty if you can show reasonable cause for the
> oversight. More information on Form 5329 can be found here:
> https://www.irs.gov/forms-pubs/about-form-5329
> 3. Next, you'll want to start taking RMDs based on the Stretch IRA
> rules. Since you've already turned 72, you should take the 2023 RMD from
> the inherited IRA as soon as you can. Keep in mind that you'll need to
> continue taking RMDs from both your own IRA and the inherited IRA going
> forward.
> 4. It's always a good idea to consult with a tax professional or
> financial advisor to help you navigate these complex issues. They can
> provide personalized guidance based on your specific situation.
> 5. In summary, your best bet is to catch up on missed RMDs, report them
> to the IRS, and start taking RMDs based on the pre-SECURE Act Stretch
> IRA rules. Remember to consult with a professional to ensure you're
> making the right moves.

[Stuart O. Bronstein]

I agree. But was it really the owner's ignorance alone? Was there
some investment or tax professional who led him to believe that no
RMD was necessary, even for five years? If so, and his belief in
them was objectively reasonable, you'd have a good argument for
waiving the penalties. I've seen the IRS waive quite large penalties
in situations like that.

Stu
http://DownToEarthLawyer.com


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