IRS - Inherited IRA - Missed 5 year deadline to withdraw

[marshall_langman]

I inherited an IRA and missed the deadline (by only a few months) to take the full disbursement (i took nothing out). Is this an easy fix like withdrawing it all, now, and sending a letter to the IRS asking for forgiveness come tax time next year? Or do i need a specialized tax lawyer to take over the case and charge me a fortune? 

I know theres now a 50% forfeiture penalty on the account; i'm trying to avoid that, of course.

thanks in advance!

[hbl3973 · Accepted solution]

You can request a waiver of that penalty on form 5329.  You access that via the "Other Tax Situations" tab.  I, myself, am submitting one this year because the financial institution failed to make the 5th year final December 2018 distribution until January 2019.

[marshall_langman]

i havent taken the distribution, yet. Should i take it, now, and file the 5329 with 2019 taxes? or take it, now, and file the 5329 with 2018 taxes?

[hbl3973]

You file the 5329 with the tax form for the tax year that you missed the five year deadline.  So if the deadline fell in 2018, you add the 5329 to the 2018 return.  And yes, I would scramble to take it out as soon as possible once you realized the mistake and, of course, mention that in your waiver request.

Stepping back, double check the 5 year rule applied to you.  IRS publication 590-B (<a rel="nofollow" target="_blank" href="https://www.irs.gov/pub/irs-pdf/p590b.pdf">https://www.irs.gov/pub/irs-pdf/p590b.pdf</a>) says the 5 year rule kicks in only when the owner died before the required distribution beginning date.

[marshall_langman]

yes, the rule applies to me. thanks for the advice. how do i get to that place in TT? i see the "other tax Forms" in "Other tax Situations" but i cant see hwo to grab the 5329. do i need to account for the money withdrawn, first, and then it will prompt for the form? how did you get the form to show?

[fanfare]

turbotax doesn't make it easy to do this without a 1099-R
you can get form 5329 in fillable-PDF form at the IRS website

[hbl3973]

If you can get into a Forms view, easy on Desktop, via the Tools menu in the online version, you can go to 5329 directly.  

[dmertz]

If you were a designated beneficiary and you would prefer not to have to distribute the entire amount, you also have the option to treat this as missed beneficiary life-expectancy RMDs for each of the 5 years.  This would require distributing the total of the life-expectancy RMD not taken through 2018 and submitting Form 5329 for each of these years, beginning with the year following the year of the decedent's death.

If there was no designated beneficiary such as when the estate is the beneficiary by default, the 5-year rule must always be used when the decedent dies before the RBD for RMDs.

If you are the spouse of the decedent, the rules are different.

[marshall_langman]

thanks for all of the help, yall. what do you think is the likelihood of getting the IRS to accept the waiver based on my lack of knowledge and non-help from my accountant and financial institution? should i just file and hope or hire an expensive attorney? the amount of money makes it worth it, either way, but if i can save 5k on legal fees, i will.

[dmertz]

It seems that the IRS will accept nearly any explanation other than "I did it intentionally."  I get the impression that the IRS generally doesn't want people to have to pay this penalty, the IRS just wants the income tax revenue.