Inherited IRA

[JLZ09]

My mother passed away in 2019.  The original beneficiaries of her IRAs disclaimed interest and her grandchildren, including my minor son, became beneficiaries.  The money was officially transferred to an Inherited IRA in my son's name in September 2021(this was also when her estate was settled).  My mom had taken her RMD in 2019, 2020 was waived due to COVID, and we have gotten varying advice from both retirement specialists and tax professionals as to what needs to be done next.  Some have said that since she died prior to the SECURE Act that my son still falls under the old "stretch" payments over this lifetime.  Some have said that no RMDs are needed, but the account needs to be drained by 2029 with the "10-year rule".  Another said that we need to fill out form 5329 because we did not withdraw in 2021 and then make up for it in 2022 to avoid penalty.  I am trying to do the right thing (and avoid any penalty), but no one seems to know exactly what to do.  Any help would be greatly appreciated.  Thank you.

[JulieS]

You have two choices, you can take RMDs starting with 2021 or you can distribute the entire account in ten years. 

Of course, 2021 is over, but if you want to take the RMD option, you can take the 2021 RMD as soon as possible and take the 2022 RMD before the end of this year.

In that case you would file a Form 5329 to ask for the penalty to be waived. They usually accept that and waive the penalty. 

Your son may have to file tax returns, to report the RMDs, depending on the amount of the distribution. 

The next option is to do nothing now and distribute the entire account balance by the ten year anniversary of your mother's death. 

The stretch IRA doesn't apply, because the account was not in your son's name prior to the enactment of the SECURE act. 

[fanfare]

@JLZ09 

The 10-year rule applies when the IRA owner died in the year 2020 or after. (Pub 590-B, 2020 Returns, Page 2).

That didn't happen here. Therefor, your son has a stretch IRA.

I recommend you get IRS Pub 590-B and find out for yourself what your son's options are.

If he is a minor you or the other parent should be shown as custodian on his behalf and you can take any actions necessary.

Don't rely on what your read on this forum, which is full of misinformation and outright wrong answers.

Note that an inherited IRA remains in the name of the original owner. Your son is added as beneficiary.

[fanfare]

if you elect to handle as a stretch IRA ( most likely the best option, depending on the dollars involved), an RMD distribution is required each year.

IRS always waives the penalty when your explanation statement is "reasonable".