excess accumulation in inherited non-spousal 401k

[orangeotis13]

I inherited a 401k upon my brother's death in 2007.  I received annual required minimum distributions (RMD) from the account.  The sponsor realized that the account should have been liquidated by the end of 2017 and in December 2024 sent me a total distribution and closed the account.  They sent a blank Form 5329 and a letter stating their administrative error and said I should attach their letter to my Form 5329 submittal.

How do I report the "excess accumulation" from this account on Form 5329?   I have entered the distribution amount on line 52a and 53a and the amount on line 54a is zero.  However, the "waiver of tax smart worksheet" has an error message and will not accept the total distribution amount on "A" and the amount on this line is highlighted in red.  It did allow me to enter an explanation and request for a waiver of the additional tax.

[dmertz]

"The sponsor realized that the account should have been liquidated by the end of 2017"

It seems unlikely that you would have been required to completely empty the entire account by the end of 2017.  For that to be the case, it seems that now in 2025 you would have to be age 98, which I would find impressive for someone posting on this form.  In any case, filing a 2024 Form 5329 would make no sense because with the entire account having been distributed by the end of 2024, there cannot have been any excess accumulation for 2024.

I suspect that the "sponsor" mistakenly believed that the 10-year rule applied.  However, the 10-year rule only applies in the case where the decedent died after 2019, which is not the case here.

(I suppose that the 401(k) plan agreement could require that the beneficiary drain the account by the end of the 10th year following the year of death, but that would be a plan requirement, not a statutory requirement, meaning that failure to drain the account by that deadline would not constitute an excess accumulation that would require filing Form 5329.)

Have you been taking RMDs from the inherited account each year since 2008?

[orangeotis13]

The sponsor of the plan did not process RMD until 2019 and I had to report the missing RMD from 2008 -2018 in 2019.  RMD have been processed each year since.  I got a letter and the liquidation check in December 2024.

If the 10 year rule does not apply because the inception of the account was in 2007, do I simply record the 2024 total liquidation of the account as a 1099-G distribution and do not need to complete a Form 5329 for excess accumulation??

[dmertz]

I don't see a need to file a 2024 Form 5329.  (I also don't see any requirement that entire amount had to be distributed in 2024, but that distribution can't be undone.)