Inherited Traditional IRA [when are RMDs required?]
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Inherited Traditional IRA [when are RMDs required?]
My brother died at the end of 2005 at the age of 48. He had a traditional IRA with Dodge and Cox. I was the beneficiary. I moved the Traditional IRA into an Inherited Traditional IRA in my name with Dodge and Cox in 2006 at the age of 47. In 2020, at the age of 61, I transferred the account to Vanguard.
It has always been my understanding, based on what I recall I was told by the Dodge and Cox people in 2006, that I would not need to take RMDs on the account until the age an owner of a traditional IRA was required to take them, which I understand is still a few years away for me. So I have always just left the account alone.
I have just gotten an email from Vanguard saying that I may need to take RMDs, and offering an RMD service which will calculate the amount and set up a yearly distribution. There is mention of the SECURE Act as having changed some aspects of how Inherited IRAs and RMDs are handled.
I would appreciate any help in understanding what I am needing or allowed or able to do with this account.
Thank you in advance for any wisdom and help you all can provide.
It has always been my understanding, based on what I recall I was told by the Dodge and Cox people in 2006, that I would not need to take RMDs on the account until the age an owner of a traditional IRA was required to take them, which I understand is still a few years away for me. So I have always just left the account alone.
I have just gotten an email from Vanguard saying that I may need to take RMDs, and offering an RMD service which will calculate the amount and set up a yearly distribution. There is mention of the SECURE Act as having changed some aspects of how Inherited IRAs and RMDs are handled.
I would appreciate any help in understanding what I am needing or allowed or able to do with this account.
Thank you in advance for any wisdom and help you all can provide.
Re: Inherited Traditional IRA [when are RMDs required?]
I'm sorry to say that I think you have a huge tax headache to resolve (and a lot of potential RMD penalties). As a non spouse beneficiary, you were required to start taking RMDs in 2006, the year after death.
EDIT: or there was a 5 year rule where you could opt not to take RMDs but then you had to completely drain the account by the 5th year...that time has passed though.
EDIT: or there was a 5 year rule where you could opt not to take RMDs but then you had to completely drain the account by the 5th year...that time has passed though.
Last edited by MrJedi on Fri Jul 30, 2021 10:29 am, edited 2 times in total.
Re: Inherited Traditional IRA [when are RMDs required?]
You might as well check out Vanguard's info on inherited IRAs (https://investor.vanguard.com/inherit/ira-rmd). It seems to cover your situation.
Re: Inherited Traditional IRA [when are RMDs required?]
Information from Schwab on Traditional IRA inherited by a non-spouse prior to 2020 agrees with Vanguard.
https://www.schwab.com/resource/youve-j ... nt-account
https://www.schwab.com/resource/youve-j ... nt-account
Qualified Nuclear Engineer & NYS Licensed Professional Engineer
Re: Inherited Traditional IRA [when are RMDs required?]
I believe this applies only when the spouse inherits. In your case I believe you were required to start RMDs right away based on your own age. Penalties are probably due, but you can request a waiver: https://www.irs.gov/retirement-plans/re ... ibutions#9thurber1609 wrote: ↑Fri Jul 30, 2021 9:40 am It has always been my understanding, based on what I recall I was told by the Dodge and Cox people in 2006, that I would not need to take RMDs on the account until the age an owner of a traditional IRA was required to take them, which I understand is still a few years away for me.
Re: Inherited Traditional IRA [when are RMDs required?]
You were required to take RMDs the following year that you inherited the IRA. I inherited my mother's in 2013 and was made to take a RMD in 2014 and annually since then. That's how it works if you aren't a spouse.
Re: Inherited Traditional IRA [when are RMDs required?]
I'm fairly confident AlanS will post a response to your situation, but yes you were required to take RMDs starting the year after the death of your brother. However there were two intervening years in which you did not have to take a RMD, 2009 and 2020 if my memory is correct. You will have to calculate to RMD for each year and take the total amount this year. The distributed amount will be reported to you on a 2021 1099-R and will be subject to taxation. Otherwise you are subject to a 50% tax penalty on the total RMD amounts. The IRS is apt to relieve the penalty if taken, reported, and explained properly.
Hopefully Alan will respond with more details.
Hopefully Alan will respond with more details.
Tom D.
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Re: Inherited Traditional IRA [when are RMDs required?]
I had the same problem once. Posters here, particularly Alan S, were very helpful. Took a bunch of work but I got it resolved and the IRS waived the penalty. Thread: viewtopic.php?f=2&t=247331
Re: Inherited Traditional IRA [when are RMDs required?]
What others have told you here is correct, you should have been taking annual RMDs except for 2009 and 2020 when RMDs were waived due to various national crises.
The only reason that you have not heard from the IRS is because their oversight of inherited IRA RMDs is about nil. Your course of action to correct this will depend on how good your records are, how much paperwork you want to do, and the balance of the inherited IRA. Incidentally, the Secure Act does NOT affect your situation.
Since brother passed before his RBD, you had a choice between the 5 year rule and life expectancy. While most IRA agreements have made life expectancy the default method, it is possible that Dodge and Cox's IRA agreement required you to take your first LE RMD by 12/31/2006 or default into the 5 year rule, meaning that the account had to be drained by 12/31/2011 (1 year added due to 2009 RMD waiver). If the balance is modest, you might just drain the account now, and file a 2011 5329 requesting that the penalty be waived. IRS Rules are not clear whether the penalty you are asking to be waived was the balance in 2011 or the current balance. The IRS will normally grant your waiver request if the form is completed correctly, meaning that you caught the error before they did.
The other possibility is very work intensive, but you may be interested if the balance is significant enough to warrant it. This is based on PLR 2008 11028 that allowed the beneficiary to "restore the stretch" by making up all the late RMDs, which would require knowing the year end balance for every year and filing a separate 5329 for each year requesting the penalty waiver. That would entail 2006-2008 and 2010-2019 5329 forms, so 13 years worth. You could then take LE RMDs starting this year and forward. Those 13 years of RMDs you make up will all be taxable in 2021 plus the 2021 RMD itself, and could end up draining very roughly half your inherited IRA balance, leaving the rest to be stretched using your remaining LE. Other than a 5329 each year, you would not have to amend any old returns, as all the distributions would be taxable in the year distributed (2021). You could add up the late RMDs and just ask for a single distribution of the total.
Apparently, Dodge and Cox gave you bad advice or there was a misunderstanding in the conversation back in 2006.
The only reason that you have not heard from the IRS is because their oversight of inherited IRA RMDs is about nil. Your course of action to correct this will depend on how good your records are, how much paperwork you want to do, and the balance of the inherited IRA. Incidentally, the Secure Act does NOT affect your situation.
Since brother passed before his RBD, you had a choice between the 5 year rule and life expectancy. While most IRA agreements have made life expectancy the default method, it is possible that Dodge and Cox's IRA agreement required you to take your first LE RMD by 12/31/2006 or default into the 5 year rule, meaning that the account had to be drained by 12/31/2011 (1 year added due to 2009 RMD waiver). If the balance is modest, you might just drain the account now, and file a 2011 5329 requesting that the penalty be waived. IRS Rules are not clear whether the penalty you are asking to be waived was the balance in 2011 or the current balance. The IRS will normally grant your waiver request if the form is completed correctly, meaning that you caught the error before they did.
The other possibility is very work intensive, but you may be interested if the balance is significant enough to warrant it. This is based on PLR 2008 11028 that allowed the beneficiary to "restore the stretch" by making up all the late RMDs, which would require knowing the year end balance for every year and filing a separate 5329 for each year requesting the penalty waiver. That would entail 2006-2008 and 2010-2019 5329 forms, so 13 years worth. You could then take LE RMDs starting this year and forward. Those 13 years of RMDs you make up will all be taxable in 2021 plus the 2021 RMD itself, and could end up draining very roughly half your inherited IRA balance, leaving the rest to be stretched using your remaining LE. Other than a 5329 each year, you would not have to amend any old returns, as all the distributions would be taxable in the year distributed (2021). You could add up the late RMDs and just ask for a single distribution of the total.
Apparently, Dodge and Cox gave you bad advice or there was a misunderstanding in the conversation back in 2006.
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Re: Inherited Traditional IRA [when are RMDs required?]
The inherited amount was around $60,000 and the balance is now around $120,000.
I am in the process of setting up an appointment with a local IRS office. Is that wise?
I am in the process of setting up an appointment with a local IRS office. Is that wise?
Re: Inherited Traditional IRA [when are RMDs required?]
Personally I think the advice from Alan S. is probably as good or better than what you will get by trying to deal with the local IRS office, without the frustration. They are probably understaffed, is the local office even open because of COVID? etc.thurber1609 wrote: ↑Fri Jul 30, 2021 11:21 am The inherited amount was around $60,000 and the balance is now around $120,000.
I am in the process of setting up an appointment with a local IRS office. Is that wise?
It sounds like your choices are to do all the paperwork and withdraw all the missing RMDs, probably around $60K, and then continue with the stretch RMDs afterwards, or just withdraw the whole thing this year (~$120K) and be done with it. Hopefully you can get the penalty waived but you will owe ordinary income tax on the amount withdrawn, either way. Which one makes the most sense for you probably depends on your paperwork tolerance and your tax situation.
Re: Inherited Traditional IRA [when are RMDs required?]
I would drain it and ask for the waiver.thurber1609 wrote: ↑Fri Jul 30, 2021 11:21 am The inherited amount was around $60,000 and the balance is now around $120,000.
I am in the process of setting up an appointment with a local IRS office. Is that wise?
Re: Inherited Traditional IRA [when are RMDs required?]
Welcome to the Forum.thurber1609 wrote: ↑Fri Jul 30, 2021 11:21 am I am in the process of setting up an appointment with a local IRS office. Is that wise?
I think that an appointment with IRS could be very helpful resolving your dilemma.
Some time ago, I had an IRA fiasco, and made an appointment at IRS regional office. Agent was charming and considerate. He "fixed" all the problems, and waived penalties. Then he offered some other helpful guidance about my tax status. It was easy and pleasant.
You will present as earnest, honest and naive. (Not a tax cheat or schemer.) They can help.
If you can get a meeting in these COVID times, I'd take it.
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Re: Inherited Traditional IRA [when are RMDs required?]
When I was going through this, that was attractive from a simplicity standpoint but my concern was "What if the IRS declines to waive the penalty"? Which I understand is highly unlikely, and my experience confirmed that. But I mean, if OP says let's call the RMD $120K, any small chance of the IRS not waiving the 50% penalty would keep me up at night.Lee_WSP wrote: ↑Fri Jul 30, 2021 12:31 pmI would drain it and ask for the waiver.thurber1609 wrote: ↑Fri Jul 30, 2021 11:21 am The inherited amount was around $60,000 and the balance is now around $120,000.
I am in the process of setting up an appointment with a local IRS office. Is that wise?
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Re: Inherited Traditional IRA [when are RMDs required?]
+1UpsetRaptor wrote: ↑Fri Jul 30, 2021 11:13 am I had the same problem once. Posters here, particularly Alan S, were very helpful. Took a bunch of work but I got it resolved and the IRS waived the penalty. Thread: viewtopic.php?f=2&t=247331
This thread talks about asking for forgiveness - definitely worth trying. TaxAide associates have told me that IRS often waives the penalty the first time RMDs are not taken.
RMDs were not required in 2020, tho I'm not sure how that applies to an inherited IRA.
I believe the IRS will tell you you must taken all missed RMDs this year.
Re: Inherited Traditional IRA [when are RMDs required?]
The penalty is already incurred. You're asking for forgiveness at this point.UpsetRaptor wrote: ↑Fri Jul 30, 2021 1:42 pmWhen I was going through this, that was attractive from a simplicity standpoint but my concern was "What if the IRS declines to waive the penalty"? Which I understand is highly unlikely, and my experience confirmed that. But I mean, if OP says let's call the RMD $120K, any small chance of the IRS not waiving the 50% penalty would keep me up at night.Lee_WSP wrote: ↑Fri Jul 30, 2021 12:31 pmI would drain it and ask for the waiver.thurber1609 wrote: ↑Fri Jul 30, 2021 11:21 am The inherited amount was around $60,000 and the balance is now around $120,000.
I am in the process of setting up an appointment with a local IRS office. Is that wise?
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Re: Inherited Traditional IRA [when are RMDs required?]
Well right, but...Lee_WSP wrote: ↑Fri Jul 30, 2021 1:56 pmThe penalty is already incurred. You're asking for forgiveness at this point.UpsetRaptor wrote: ↑Fri Jul 30, 2021 1:42 pmWhen I was going through this, that was attractive from a simplicity standpoint but my concern was "What if the IRS declines to waive the penalty"? Which I understand is highly unlikely, and my experience confirmed that. But I mean, if OP says let's call the RMD $120K, any small chance of the IRS not waiving the 50% penalty would keep me up at night.Lee_WSP wrote: ↑Fri Jul 30, 2021 12:31 pmI would drain it and ask for the waiver.thurber1609 wrote: ↑Fri Jul 30, 2021 11:21 am The inherited amount was around $60,000 and the balance is now around $120,000.
I am in the process of setting up an appointment with a local IRS office. Is that wise?
Okay, so let's say that OP goes through his records, calculates the actual missed RMD each year, tabulates it all up, and comes up with $54K worth of missed RMDs since 2005 (a back of the envelope estimate I just calculated, though I of course don't know the annual 12/31 balance of the account). Takes out that full RMD this year and asks for the penalty waiver. In the unlikely event the IRS says No, that's a $27K penalty owed to the IRS.
Now let's say (I think this is what you were saying) the OP doesn't calculate all that out, and for simplicity sake just takes out the full $120K as RMD, and puts the full $120K on the 5329 form as the missed RMD amount, and asks for penalty waiver. In the unlikely event the IRS says no, that's now a $60K penalty. In addition to an extra $66K taxable income this year vs the last paragraph.
See the difference?
Maybe I misunderstood what you were saying though.
Last edited by UpsetRaptor on Fri Jul 30, 2021 2:23 pm, edited 1 time in total.
Re: Inherited Traditional IRA [when are RMDs required?]
The IRS and trustee need to okay the lifetime withdrawal and the amount of effort involved in doing it that way is significant.UpsetRaptor wrote: ↑Fri Jul 30, 2021 2:12 pmWell right, but...Lee_WSP wrote: ↑Fri Jul 30, 2021 1:56 pmThe penalty is already incurred. You're asking for forgiveness at this point.UpsetRaptor wrote: ↑Fri Jul 30, 2021 1:42 pmWhen I was going through this, that was attractive from a simplicity standpoint but my concern was "What if the IRS declines to waive the penalty"? Which I understand is highly unlikely, and my experience confirmed that. But I mean, if OP says let's call the RMD $120K, any small chance of the IRS not waiving the 50% penalty would keep me up at night.Lee_WSP wrote: ↑Fri Jul 30, 2021 12:31 pmI would drain it and ask for the waiver.thurber1609 wrote: ↑Fri Jul 30, 2021 11:21 am The inherited amount was around $60,000 and the balance is now around $120,000.
I am in the process of setting up an appointment with a local IRS office. Is that wise?
Okay, so let's say that OP goes through his records, calculates the actual missed RMD each year, tabulates it all up, and comes up with $54K worth of missed RMDs since 2005 (a back of the envelope estimate I just calculated, though I of course don't know the annual 12/31 balance of the account). Takes out that full RMD this year and asks for the penalty waiver. In the unlikely event the IRS says No, that's a $27K penalty owed to the IRS.
Now let's say (I think this is what you were saying) the OP doesn't calculate all that out, and for simplicity sake just takes out the full $120K as RMD, and puts the full $120K on the 5329 form as the missed RMD amount, and asks for penalty waiver. In the unlikely event the IRS says no, that's a $60K penalty. In addition to an extra $66K taxable income this year vs the last paragraph.
See the difference?
Maybe I misunderstood what you were saying though.
Nevertheless, it's an alternative. Just not what I'd do.
Also, if they don't waive, you can argue you only owe that amount because that's all that was required. The final withdrawal is a voluntary withdrawal.
Re: Inherited Traditional IRA [when are RMDs required?]
My mom had missed an RMD before she passed away. IRS indeed waived the penalty on our fessing up and the tax preparer filing the correct form.InMyDreams wrote: ↑Fri Jul 30, 2021 1:50 pm+1UpsetRaptor wrote: ↑Fri Jul 30, 2021 11:13 am I had the same problem once. Posters here, particularly Alan S, were very helpful. Took a bunch of work but I got it resolved and the IRS waived the penalty. Thread: viewtopic.php?f=2&t=247331
This thread talks about asking for forgiveness - definitely worth trying. TaxAide associates have told me that IRS often waives the penalty the first time RMDs are not taken.
RMDs were not required in 2020, tho I'm not sure how that applies to an inherited IRA.
I believe the IRS will tell you you must taken all missed RMDs this year.
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Re: Inherited Traditional IRA [when are RMDs required?]
I'm still not sure if I'm following you. When you request a waiver, you send along with the waiver request the 5329 forms indicating the amount of missed RMDs, and thus the amount of the penalty you're requesting a waiver from. So the potential penalty amount, unlikely as it is to manifest, is a lot lower if you calculate it all out first and file with the true missed RMD amounts versus just stating the full $120K as missed RMDs on the 5329. That was all I was saying. It's probably moot though, since it's likely to be waived, and you and I might just be talking past each other. A bigger issue to OP may be the extra $120K vs $50K in taxable income this year if they drained it vs calculated it all out.
Re: Inherited Traditional IRA [when are RMDs required?]
Agreed about taxable income in one year, but it's also a windfall so...UpsetRaptor wrote: ↑Fri Jul 30, 2021 2:37 pmI'm still not sure if I'm following you. When you request a waiver, you send along with the waiver request the 5329 forms indicating the amount of missed RMDs, and thus the amount of the penalty you're requesting a waiver from. So the potential penalty amount, unlikely as it is to manifest, is a lot lower if you calculate it all out first and file with the true missed RMD amounts versus just stating the full $120K as missed RMDs on the 5329. That was all I was saying. It's probably moot though, since it's likely to be waived, and you and I might just be talking past each other. A bigger issue to OP may be the extra $120K vs $50K in taxable income this year if they drained it vs calculated it all out.
IRS penalties are not my specialty btw. So my comment is truly limited to "that's what I would pursue it in that position". I have limited experience in the appeals process, but part of the appeal would be to point out that the penalty would be less had I chosen to go the route you said. Don't know how well they'd take it, but it's an argument I'd pose.
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Re: Inherited Traditional IRA [when are RMDs required?]
Hi everybody. Thanks for everyone's help. I called to make a appointment at the local IRS office. I talked to someone for about 10 minutes. She was trying to determine if available staff would be able to help. She then said she could transfer me to the IRS law office (I think that's what she called it) to discuss the situation with them if I wanted. I said sure. I talked to someone for almost an hour, as we went through the particulars of the situation and she researched various matters. Both IRS individuals were very kind and helpful and patient.
Because I did not take the first LE RMD in the first year that I was supposed to (2006), I defaulted to the 5 year rule such that the account needed to be totally drained by 12/31/2011.
I will submit Form 1040-X for 2011, where I will explain the situation, explain that it was out of ignorance, ask for a waiver of the penalty, and explain how I am remedying the situation (I will empty the account). Accompanying that will be Form 5329 where I will provide the closing balance for the account on 12/31/2011 (about $65,000) which would have been the required distribution (since the account needed to be emptied by then), indicate that 0 was actually distributed, and indicate that I am requesting that the 50% tax penalty be waived by the reasonable cause explained on 1040-X. Then I will wait to hear the decision, and next year I will pay the required taxes.
Because I did not take the first LE RMD in the first year that I was supposed to (2006), I defaulted to the 5 year rule such that the account needed to be totally drained by 12/31/2011.
I will submit Form 1040-X for 2011, where I will explain the situation, explain that it was out of ignorance, ask for a waiver of the penalty, and explain how I am remedying the situation (I will empty the account). Accompanying that will be Form 5329 where I will provide the closing balance for the account on 12/31/2011 (about $65,000) which would have been the required distribution (since the account needed to be emptied by then), indicate that 0 was actually distributed, and indicate that I am requesting that the 50% tax penalty be waived by the reasonable cause explained on 1040-X. Then I will wait to hear the decision, and next year I will pay the required taxes.
Re: Inherited Traditional IRA [when are RMDs required?]
Amazing that you actually got in touch with not only one person at the IRS, but two!
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Re: Inherited Traditional IRA [when are RMDs required?]
Am I to understand that in a case like retiredjg's, theoretically he could just withdraw the money in one swoop, that is, drain it to zero in one withdrawal? I may be running into an inherited traditional IRA soon. I hope not, but it seems so.
Re: Inherited Traditional IRA [when are RMDs required?]
I think you mean someone else.FrodoKenobi wrote: ↑Fri Jul 30, 2021 4:22 pm Am I to understand that in a case like retiredjg's, theoretically he could just withdraw the money in one swoop, that is, drain it to zero in one withdrawal? I may be running into an inherited traditional IRA soon. I hope not, but it seems so.
However if you inherit a traditional IRA now, the rules are different from what they were back then. They changed at the end of 2019 with the passage of the SECURE Act.
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Re: Inherited Traditional IRA [when are RMDs required?]
With regard to getting through to an IRS person, I called twice, and each time the automated system told me they couldn't take my call due to call volume, and to try back later. At that point I envisioned not ever being able to getting through to an IRS person before someone inherited the inherited IRA from me and inherited the problems too. But I called a third time and the system didn't kick me off. I was on hold for 45 minutes. When IRS person #1 said she would transfer me to legal, I asked what the phone number was in case I needed to call back. She said it was an internal transfer and so wasn't accessible from the outside. After being transferred I waited about 10 minutes before someone picked up.
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Re: Inherited Traditional IRA [when are RMDs required?]
Inheriting a non-spousal IRA was definitely changed by the 2019 SECURE act.thurber1609 wrote: ↑Fri Jul 30, 2021 9:40 am My brother died at the end of 2005 at the age of 48. He had a traditional IRA with Dodge and Cox. I was the beneficiary. I moved the Traditional IRA into an Inherited Traditional IRA in my name with Dodge and Cox in 2006 at the age of 47. In 2020, at the age of 61, I transferred the account to Vanguard.
...
I have just gotten an email from Vanguard saying that I may need to take RMDs, and offering an RMD service which will calculate the amount and set up a yearly distribution. There is mention of the SECURE Act as having changed some aspects of how Inherited IRAs and RMDs are handled.
It also would have made a difference that you are not ten years younger than your brother,
so all the good advice you receive here may not apply to other people.
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Re: Inherited Traditional IRA [when are RMDs required?]
This.Lee_WSP wrote: ↑Fri Jul 30, 2021 12:31 pmI would drain it and ask for the waiver.thurber1609 wrote: ↑Fri Jul 30, 2021 11:21 am The inherited amount was around $60,000 and the balance is now around $120,000.
I am in the process of setting up an appointment with a local IRS office. Is that wise?
The IRS is well known to grant waivers for any reasonable explanation for why the withdrawals were not done. DW's aunt had an IRA and following her 70th birthday, failed to ever take an RMD. At about 5 years, while in the hospital following an accident, DW took over the finances (POA) and found that she never had taken the RMDs. A simple explanation to the IRS that her mental capacity was not high enough to understand the rules was enough for the penalties to be waived.
By draining the account, you're showing the IRS that you've done what you can to incur the taxes, which is what they want anyways. Don't penny pinch here, trying to scheme to only withdraw some amount that is necessary. If the IRS does give you the penalty, it starts at 50% of the amount you should have withdrawn as RMDs for each year you failed to do so.
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Re: Inherited Traditional IRA [when are RMDs required?]
Assuming the IRS agent's conclusion was based on the law and not on provisions specified in the Dodge & Cox IRA agreement, the conclusion appears not to be supported by the language of the law: Treas Reg 1.401(a)(9)-3 Q&A-4. And it is contrary to the interpretation of the law that the IRS made in Private Letter Ruling 200811028 cited above by Alan. In that ruling, the IRS stated that, when an IRA owner dies prior to their RBD, the beneficiary is not precluded from using the life expectancy payout method going forward due solely to the fact that the beneficiary missed the first 2 years' life-expectancy method RMDs.thurber1609 wrote: ↑Fri Jul 30, 2021 4:01 pm ... I called to make a appointment at the local IRS office. I talked to someone for about 10 minutes. She was trying to determine if available staff would be able to help. She then said she could transfer me to the IRS law office (I think that's what she called it) to discuss the situation with them if I wanted. I said sure. I talked to someone for almost an hour, as we went through the particulars of the situation and she researched various matters. Both IRS individuals were very kind and helpful and patient.
Because I did not take the first LE RMD in the first year that I was supposed to (2006), I defaulted to the 5 year rule such that the account needed to be totally drained by 12/31/2011.
Re: Inherited Traditional IRA [when are RMDs required?]
But RMDs were not taken for more than a decade. Well past the 2-years you site.MarkNYC wrote: ↑Sat Jul 31, 2021 5:26 pmAssuming the IRS agent's conclusion was based on the law and not on provisions specified in the Dodge & Cox IRA agreement, the conclusion appears not to be supported by the language of the law: Treas Reg 1.401(a)(9)-3 Q&A-4. And it is contrary to the interpretation of the law that the IRS made in Private Letter Ruling 200811028 cited above by Alan. In that ruling, the IRS stated that, when an IRA owner dies prior to their RBD, the beneficiary is not precluded from using the life expectancy payout method going forward due solely to the fact that the beneficiary missed the first 2 years' life-expectancy method RMDs.thurber1609 wrote: ↑Fri Jul 30, 2021 4:01 pm ... I called to make a appointment at the local IRS office. I talked to someone for about 10 minutes. She was trying to determine if available staff would be able to help. She then said she could transfer me to the IRS law office (I think that's what she called it) to discuss the situation with them if I wanted. I said sure. I talked to someone for almost an hour, as we went through the particulars of the situation and she researched various matters. Both IRS individuals were very kind and helpful and patient.
Because I did not take the first LE RMD in the first year that I was supposed to (2006), I defaulted to the 5 year rule such that the account needed to be totally drained by 12/31/2011.
Re: Inherited Traditional IRA [when are RMDs required?]
That's true, but why is it relevant? Where in the law (or any IRS ruling) does it state that after a specific number of years of missed RMDs that the life expectancy method is forfeited?Eagle33 wrote: ↑Sat Jul 31, 2021 10:54 pmBut RMDs were not taken for more than a decade. Well past the 2-years you site.MarkNYC wrote: ↑Sat Jul 31, 2021 5:26 pmAssuming the IRS agent's conclusion was based on the law and not on provisions specified in the Dodge & Cox IRA agreement, the conclusion appears not to be supported by the language of the law: Treas Reg 1.401(a)(9)-3 Q&A-4. And it is contrary to the interpretation of the law that the IRS made in Private Letter Ruling 200811028 cited above by Alan. In that ruling, the IRS stated that, when an IRA owner dies prior to their RBD, the beneficiary is not precluded from using the life expectancy payout method going forward due solely to the fact that the beneficiary missed the first 2 years' life-expectancy method RMDs.thurber1609 wrote: ↑Fri Jul 30, 2021 4:01 pm ... I called to make a appointment at the local IRS office. I talked to someone for about 10 minutes. She was trying to determine if available staff would be able to help. She then said she could transfer me to the IRS law office (I think that's what she called it) to discuss the situation with them if I wanted. I said sure. I talked to someone for almost an hour, as we went through the particulars of the situation and she researched various matters. Both IRS individuals were very kind and helpful and patient.
Because I did not take the first LE RMD in the first year that I was supposed to (2006), I defaulted to the 5 year rule such that the account needed to be totally drained by 12/31/2011.
Re: Inherited Traditional IRA [when are RMDs required?]
This issue can get quite complicated.
A review of PLR 2008 11028 indicates that the IRS ignored the omission of distributing the first beneficiary RMD by the end of the year following the year of death as a possible imputed election into the 5 year rule. Discussions of IRA Custodian election deadlines and methods are few and far between. We don't
A review of PLR 2008 11028 indicates that the IRS ignored the omission of distributing the first beneficiary RMD by the end of the year following the year of death as a possible imputed election into the 5 year rule. Discussions of IRA Custodian election deadlines and methods are few and far between. We don't
Re: Inherited Traditional IRA [when are RMDs required?]
PLR 2008-11028 appears to conclude that failure to take the first LE RMD by the end of the year following the year of death did not rise to the level of electing out of LE and into the 5 year rule. This issue of elections and deadlines is often unclear in beneficiary clauses of IRA agreements.
A review of Vanguard's agreement reveals the same situation the IRS assumed in the PLR, a vague election action. In OP's discussion with the IRS however, the IRS agent seems to have gone the other way, assuming that a failure to take the first LE RMD did constitute an election of the 5 year rule.
Further, since 2008, the IRS has accepted late restoration of the stretch, and going a large step further, have apparently waived the 50% excess accumulation tax upon receiving a 5329. PLR 2008-11028 resulted in the applicant paying the penalty for two years of late LE RMDs, so the IRS has allowed the PLR to be further expanded by their penalty waiver decisions. This directly affects the current landscape since if the penalty were due, no one would attempt to restore the stretch after a couple years, certainly not for the length of time in the OPs situation.
I think that if all these late LE RMDs were made up, the IRS would probably approve the penalty waiver. There has been no reported situations where a trade off between restoring the stretch and the penalty waiver surfaced. Having gone this far into limbo, the IRS will now probably expect the 10 year rule to greatly reduce these situations as Secure Act Regulations will be getting most of the attention going forward.
So while there are gray areas here, it is probably reasonably safe to go with the trend the IRS has established with the PLR and 12 years of subsequent enforcement actions. Make up the late RMDs if you wish and feel free to request the penalty waiver as well.
For those who want to read the PLR: https://www.irs.gov/pub/irs-wd/0811028.pdf
A review of Vanguard's agreement reveals the same situation the IRS assumed in the PLR, a vague election action. In OP's discussion with the IRS however, the IRS agent seems to have gone the other way, assuming that a failure to take the first LE RMD did constitute an election of the 5 year rule.
Further, since 2008, the IRS has accepted late restoration of the stretch, and going a large step further, have apparently waived the 50% excess accumulation tax upon receiving a 5329. PLR 2008-11028 resulted in the applicant paying the penalty for two years of late LE RMDs, so the IRS has allowed the PLR to be further expanded by their penalty waiver decisions. This directly affects the current landscape since if the penalty were due, no one would attempt to restore the stretch after a couple years, certainly not for the length of time in the OPs situation.
I think that if all these late LE RMDs were made up, the IRS would probably approve the penalty waiver. There has been no reported situations where a trade off between restoring the stretch and the penalty waiver surfaced. Having gone this far into limbo, the IRS will now probably expect the 10 year rule to greatly reduce these situations as Secure Act Regulations will be getting most of the attention going forward.
So while there are gray areas here, it is probably reasonably safe to go with the trend the IRS has established with the PLR and 12 years of subsequent enforcement actions. Make up the late RMDs if you wish and feel free to request the penalty waiver as well.
For those who want to read the PLR: https://www.irs.gov/pub/irs-wd/0811028.pdf