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Hi My questions are both financial and tax related. I have

Customer Question
Hi My questions are both financial...
Hi
My questions are both financial and tax related.
I have a client coming in shortly who needs help filling out paperwork fora distribution. She is saying that it is from her child's deceased father. She is the beneficiary, but I don't beleive they were ever married. so:
1. It has been about 10 years since his death. Is there anything special I have to do where she didn't take any distributions from this within the 5 year limit
2. Will she still have to open up a "inherited IRA" before any distributions are made?
3. If she was married to him, which I doublt, but is divorced is she considered a non-spouse beneficiary where she should have taken the distribution already.
4. She is calling this an IRA, but I am wondering if it wasn't a 401K. How does that change her distribution, etc?
Thanks for your help. Sorry to be vague, but I am waiting for her to come in and want some bakcground before she gets here.
Submitted: 5 years ago.Category: Tax
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6/1/2012
Tax Professional: Lev, Tax Advisor replied 5 years ago
Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 30,663
Experience: Taxes, Immigration, Labor Relations
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Hi and welcome to Just Answer!

 

1. It has been about 10 years since his death. Is there anything special I have to do where she didn't take any distributions from this within the 5 year limit

If an account owner fails to withdraw by the applicable deadline, the amount not withdrawn is taxed at 50%.
The penalty may be waived if the account owner establishes that the shortfall in distributions was due to reasonable error and that reasonable steps are being taken to remedy the shortfall. In order to qualify for this relief, you must file Form 5329 and attach a letter of explanation. See the instructions to Form 5329 for all the rules on how to apply for this waiver.
Your client should take distribution as soon as possible and will file form 5329 with 2012 tax return.
If she will say "I forgot" - that might not be accepted as a reasonable cause. Health problems might be accepted.


2. Will she still have to open up a "inherited IRA" before any distributions are made?

It is too late to open an "inherited IRA" account - that should be done within a year after the death. The only option is to take a distribution.
3. If she was married to him, which I doubt, but is divorced is she considered a non-spouse beneficiary where she should have taken the distribution already.
She is considered non spouse based on the martial status at the time of death. However even if she wants to treat an inherited tax deferred account as her own and roll it over to her account - that should be done within a year after the death.

4. She is calling this an IRA, but I am wondering if it wasn't a 401K. How does that change her distribution, etc?

That will be no difference.

 

Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 30,663
Experience: Taxes, Immigration, Labor Relations
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Customer reply replied 5 years ago
Thank you. I thought that was the case, but just wanted some reinforcement.
Tax Professional: Lev, Tax Advisor replied 5 years ago

You are welcome.

Please update me with outcomes.

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