Question: I have been delinquent in requesting the RMD’s for the years since my father’s death on December 19, 2006. At that time I was 49 years of age.
Now it is at the 5 year mark and I don’t wish to incur a 50% penalty. Attached is the signed document authorizing withdrawal as RMD for these years MINUS 2009, as the RMD was not required in that year. It is absolutely my intent to use this email to provide additional instruction and provide authorization for this purpose.
I’ve copied my attorney on this email, as he is also doing my taxes this year and needs to know immediately the withdrawal amount and information for tax purposes. Please feel free to reply to both of us with all correspondence on this request.
Please note that I’ve not completed the withdrawal amount; I request that you/Quest calculate this based on my age at the time of my father’s death and withdraw the appropriate amount. I acknowledge that time is very short, as 2010 taxes are due this coming Friday. I’m traveling on business this week, but can be available by phone and email to resolve this, this week.
Answer: I would be happy to help as far as I can, but there are limits on what I can do at this point. The way the rules work for Required Minimum Distributions (RMDs) from IRAs inherited from non-spouses is that you must take distributions either based on your life expectancy beginning in the year following your father’s death or you can wait as long as 5 years and then take the entire amount out. As you know, if you fail to take the RMD there is a 50% penalty on the amount you should have taken. To calculate the amount to be taken requires you to take the balance in the account at the end of the prior year and divide it by a factor which is initially retrieved from IRS Publication 590, Appendix C, Table I, and in subsequent years is reduced by one. In your case, since you turned age 50 in 2007, your initial factor would be 34.2 (see page 88 of IRS Publication 590 for 2010 tax returns). So your factors for the years 2007 through 2011 would be as follows:
2007 – 34.2
2008 – 33.2
2009 – 32.2
2010 – 31.2
2011 – 30.2
An example of how you make the calculation is as follows, assuming that the balance in your IRA was $100,000 at the end of the prior year each year: $100,000 /34.2 = $2,923.98 for 2007, $100,000/33.2 = $3,012.05 for 2008, etc.
You are correct when you state that no RMDs were required for 2009, but the factor still was reduced by one in that year, as it is in all years. Unfortunately, I do not have all the information needed to calculate your RMDs. For 2007, you would need to provide us with a statement dated 12/31/2006 from your prior custodian, since you didn’t open the account until March, 2007. In subsequent years, you will need to provide me with a Fair Market Value form as of 12/31 each year signed by you and a qualified third party appraiser so that I can adjust the value of your account each year before making any calculations. In reviewing your file I see no updates to the value since the initial investment of $100,000. I have attached the needed form and the instructions.
When you do arrive at a figure you will need to submit a revised and legible Distribution form. I cannot complete the amount for you, and the form must be legible because we have to transmit it to our central processing facility. Unfortunately, the one you submitted was not legible. I’m not sure why, perhaps the ink was not a color that scanned well or something.
I hope that helps get you started. Fortunately, this year the tax filing deadline is April 17, not April 15. Good luck, and let me know if you have any further questions.