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Stephen G.
Stephen G., Sr Income Tax Expert
Category: Tax
Satisfied Customers: 4027
Experience:  Extensive Experience with Tax, Financial & Estate Issues
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I Inherited a traditional IRA, as a non-spousal beneficiary.

Resolved Question:

I Inherited a traditional IRA, as a non-spousal beneficiary. Id like to do life expectancy payments but the IRS allows one year after IRA owners death. The IRA owner died, December 13, 2011. I was located by wells fargo the holder of the IRA, July 10, 2013. I missed the deadline, i was told that there may be an IRS form to get around that rule if the beneficiary was located after the 1 year deadline.

How should i proceed to get life expectancy payments ?
Submitted: 1 year ago.
Category: Tax
Expert:  Stephen G. replied 1 year ago.

Stephen G :

Hi & thanks for using our service. I'll do my best to give you a complete & accurate answer. Please ask me to clarify anything that is not clear.

Stephen G :

First of all, apparently the decedent died before his required beginning date for minimum distributions (ie. April 1st of the year following attainment of age 70 1/2).

Stephen G :

The real question in your situation, is under the IRA plan in question, what is the default rule for distributions for a non-spouse beneficiary?

Stephen G :

If the plan allows an option between life expectancy and the "5 year rule", then there should be a default provision of one or the other & in that case if you fail to meet the deadline, the plan provision governs.

Customer:

she died at the age of 70, DOB August 22 1941 , DOD December 13, 2011

Stephen G :

If the bank would allow you to use the life expectancy method, then the form they are talking about is Form 5329 which would be the form you would use to request a waiver of the penalty for failure to make the 1st life expectancy withdrawal by 12/31/12.

Stephen G :

Under the circumstances it would be unlikely that you wouldn't be granted the penalty waiver.

Stephen G :

If, by the way, the plan has no default provision, then the life expectancy method becomes the default method.

Stephen G :

So, everything hinges on the specific provisions of the bank's Prototype IRA Plan.

Customer:

can i email you a scan of the form and letter from wells fargo ?

Stephen G :

There is no specific way to request a "waiver" of the deadline as it is irrevocable and the default plan provisions automatically take over.

Stephen G :

Unfortunately, the only way you can do that is to post it here; we are not allowed to communicate with customers via email or offsite. What is the form you are talking about?

Stephen G :

Does the letter say that you must use the 5 year rule?

Stephen G :

A W-9 is nothing more than a withholding form;

Customer:

ok, i believe the 5329 form is correct. ill have to get a tax adviser to fill it out. the letter does not say a mandatory 5 year rule and the beneficiary distribution election has both 5 year and life exp. options available. the letter says "the payment for 2012 was missed as we only recently obtained current contact information to locate you. Please speak with your tax adviser concerning the missed 2012 payment"

Stephen G :

That's easy then...............

Stephen G :

Elect the life expectancy option; you'll probably need to catch up on the 2012 distribution now & the 5329 should eliminate the penalty (which is 50%) of the undistributed amount.

Stephen G :

Approximately how much is in the IRA & how old are you?

Stephen G :

The 5329 is no big deal to fill out; most of it won't apply.

Customer:

303 k , 19 years old , after returning both forms to wells fargo, and 5329 to the IRS. Can i with drawn from the IRA? say 100 k ? im aware ill be charged income tax.

Stephen G :

Have you filed your 2012 tax return yet?

Customer:

yes

Stephen G :

The 5329 goes in with your tax return, not separately.

Stephen G :

If you can take out such a lump sum, you won't want to take it out all at once; at least spread it out over 2 tax years.

Stephen G :

You are going to need to sit down with a CPA & do some tax planning so you pay the least amount of taxes possible if you are making that kind of withdrawal.

Stephen G :

What do you need the money for? Can it be spread out?

Customer:

That was my game plan, i just wanted a better understanding from you, which i feel i have now

Stephen G :

OK

Customer:

spread out how much ?

Stephen G :

That's what you need to plan based upon your entire tax situation so you can avoid jumping up 2 or 3 tax brackets.

Customer:

id like to buy a 72 k vehicle. Do some home improvment and pay for college. i make 25-35 k a year at my day job currently

Stephen G :

What's your first name?

Customer:

David

Stephen G :

OK, now - paying for college is smart; you can pay that as you go along; what in the world do you at 19 need a 72K vehicle for?

Customer:

I figured id hear that all the way down the line. Its a collectable car that holds its value well, i have a house that is paid off, with a roommate paying 800/ m and im making 500 to 1000 a week. I also have enough savings to feel very financially stable without the IRA

Customer:

im aware of my inexperience, i have been told the same thing by my father ! haha

Customer:

id like to invest the remainder of the money is some sore of retirement fund.

Stephen G :

Well, at your age investing that 72K rather than sinking it into a collectible car could easily turn into a million dollars by the time you reach 60. That's an expensive car. I had a client in the restoration business -- cars worth several hundred thousand dollars -- he comes from an exceedingly wealthy family -- and he has no expensive cars himself -- his money is all in the stock market -- several million dollars -- so, while you certainly can do it; 300K really isn't that much money these days, especially when you deplete it for college; depending upon where you're going of course.

Stephen G :

Just think about it; you've only known about the IRA money for a week;

Stephen G :

OK, its 2 AM here & the Open Championship starts at 4 AM, so I'm going to pack it in for the night....err morning.... I'll leave my contact info in case you want to reach me again.....................

Stephen G :

If you need to contact me again with any tax or financial questions, you can just ask for "Steve G" at the beginning of your question. Again, please remember to rate my response. Bonuses, where you think they are warranted, and excellent ratings, are always most appreciated. Thanks again for using JustAnswer.com.You may get a short survey from the site; if it isn't too much trouble I would appreciate it if you would answer it; the survey results are used to rate our performance;

Customer:

im trying to see all the options, i intend on replenishing what ever is lost. i appreciate your help Stephen G. Thanks for the answers so late !

Stephen G :

OK, & be smart about the $.

Stephen G :

You can always spend them.

Customer:

its a hell of alot easier to spend then earn, but i should be able to add 72 k in principle in 2-5 years

Stephen G :

Good. That would be a good time to buy your car! :]

Stephen G :

Someday I'll tell you my story about buying a horse.

Customer:

But dad i want my car now ! ;)

Customer:

your giving great advice, ill do my best to be smart $

Customer:

thats why im here after all

Stephen G :

I know; instant gratification screws up the world; trust me, I've been there and back.

Stephen G :

nite

Customer:

good night

Stephen G., Sr Income Tax Expert
Category: Tax
Satisfied Customers: 4027
Experience: Extensive Experience with Tax, Financial & Estate Issues
Stephen G. and 5 other Tax Specialists are ready to help you

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