Inherited IRA

[mberelake4]

My father passed in December 2019. I inherited a traditional IRA from him but did NOT transfer it into my name until November of 2024.  From what I've read online I know I need to take minimum distributions and am concerned that because he passed before change in law, I may now be subject to a 50% tax by IRS! Is this true? The IRA is 27k and I need help figuring out how and what to do to minimize my tax burden.  I'm single and 58 years old.

[RobertB4444]

Because it is an inherited IRA you should talk to the financial management company that is handling it for you and have them manage your RMD automatically starting immediately.  It should just be sent with you and taxes sent to the IRS every year.  

@mberelake4 

[mberelake4]

@RobertB4444 Thanks for advice.  It's Vanguard and they did not offer any assistance like what you mentioned.  Will I have to pay a fee for them to do this?  If at all possible I'd rather do it myself to avoid extra fees. But do you know if I am subject to that 50% tax? Their website suggested I contact "my tax professional".

[RobertB4444]

There is not a 50% tax on IRAs.  It is 25% on the RMDs that you don't take.  And that is not applicable here since you just got the account.

[Edited 02/05/2025   04:56 PM PST]

@mberelake4 

@mberelake4 

[mberelake4]

@RobertB4444 I'm confused, I thought this forum was connecting me with a "tax professional"? I do my own taxes. The 50% tax is because minimum distributions weren't taken within the 5 years after his death (2019).  That is the old rule.  It has since changed for anyone who passed 2020 and later now have 10 years for RMD.  

[RobertB4444]

This forum connects you with a variety of tax experts answering questions about general taxation and using TurboTax.  And we're happy to do so!  

The 50% tax that you're talking about is for RMDs that you didn't take.  But the IRA was just transferred to you so you haven't missed any RMDs yet.  So start taking the RMDs immediately and you should be fine.

@mberelake4 

[mberelake4]

@RobertB4444 My situation is a bit different.  I believe that RMD's weren't taken for the last few years of his life.  So that is what has me concerned about the 50% tax. How do I find out how much to take?  Can you direct me to someone who is a "tax professional"? I want to know what to do with this money to minimize any tax liability for me. 

Thank you very much for your time and assistance!! 🙂

[RobertB4444]

So your father didn't take RMDs while he was alive?  That counts as a missed RMD.  

But you can still save yourself from the big penalties.  You just got access to the account and - in addition to the RMD that you are required to take - you can take all of the ones that your father was required to take.  

You have to do this within two years of when they were supposed to be taken but since you just took possession of the account then as long as you do it soon and file form 5329 with your return you should be able to get away with only a 10% penalty on the amounts that he should have taken.

Here are the IRS FAQ on retirement plan withdrawals.  And here is form 5329 so you can take a look at it.

@mberelake4 

[mberelake4]

@RobertB4444 Okay, great advice! I have no idea how to find out how many RMD's he missed.  Would Vanguard have that information? I'm sorry to pepper you with so many questions! This is all very confusing and overwhelming for me.  

Thank you again! 

[DaveF1006]

Yes, you can contact Vanguard to see if they have that information. This would be a good starting point.