Questions and Answers
An IRA owner died in 2006, after his required beginning date (RBD) and after taking his required minimum distribution (RMD) for the year. The IRA owner's children are primary beneficiaries, sharing their father's IRA equally. The children failed to take their respective 2007 RMDs. What options are available to them now? Can they still use the 5-year rule?
When an IRA owner dies after his/her RBD, nonspouse beneficiaries have only one distribution option--distributions calculated based on single life expectancy (determined in the year after death and reduced by one each year). A beneficiary can take more than the calculated amount in any year, including a lump sum distribution of his/her share.
The fact that the beneficiaries failed to take an RMD in 2007 does not change their distribution option. Instead, they are subject to a 50 percent penalty tax on the amount of the RMD not taken in 2007, which they report to the IRS using IRS Form 5329. They may want to discuss correct filing of that form with their tax advisers.
(Posted: 07/30/2008)
