Thank you for the detailed history and detailed questions.
Firstly, "is the distribution chosen, the best option?" Since they had him certify to a Single Life Annuity, did he have another option? The annuity may need to be reviewed by a financial adviser. If this was a Cash Balance Plan there are options to roll the lump sum into an annuity, an IRA, or other qualified retirement plan.
"Will the IRS impose penalties for non-withdrawals?" It depends on what kind of plan it was. For example, Roth IRAs do not have a RMDs.
A Cash Balance Plan is a defined benefit plan and considered tax-deferred. Distributions are reported as ordinary income in the year distributed (not earned). So if he left California in 2017, there would be no state liability if he received the distribution in 2024. Furthermore, there would be no amendment for prior years on the earnings. However, Cash Balance Plans do require RMDs and so an amendment of the previous federal returns to calculate the penalties would be appropriate.
If the IRS imposes penalties on the late RMD, the IRS will impose them on the tax payer.
