inherited IRA question

[livingalmostlarge]

If you inherit an IRA before your parent is 70 (presecure act), you don't need to take RMD until the person you inherited from would have started taking RMDs?

You don't have to take RMDs the year after they die if they are pre-RMD age?

 

[ncbill]

If you inherit an IRA before your parent is 70 (presecure act), you don't need to take RMD until the person you inherited from would have started taking RMDs?

You don't have to take RMDs the year after they die if they are pre-RMD age?

Do you mean prior to 1/1/2020 when they had not yet been required to start RMDs?

Under those "old rules" if you inherited from anyone other than a spouse you had to start taking RMDs by the end of the year after the year they died based on your remaining life expectancy (see IRS tables) in order to "stretch out" the distributions over your lifetime.

 

[Sunset]

If you inherit an IRA before your parent is 70 (presecure act), you don't need to take RMD until the person you inherited from would have started taking RMDs?

You don't have to take RMDs the year after they die if they are pre-RMD age?

It would be less ambiguous if you added month & year dates to the question.

example:
parent died June 2020,
estate transferred IRA to my account Nov 2020
Parent was under age 70 at death.

 

[livingalmostlarge]

If they died in June 2012 and were 60. Did you have to start taking RMD immediately?

Someone asked me how does the IRS know if you take RMD? Is it only by honor? If you don't take RMD how will they catch you?

 

[MissMolly]

The IRS knows you have taken an RMD because you report it on your tax return and pay any applicable taxes. The custodians that administer the IRA report what RMDs are due each year as well as how much has been taken. Failure to take an RMD can result in a 50% penalty assessed by the IRS. So not only would you have to report the full amount that should have been taken and pay taxes on it, you will forfeit 50% in penalties. Would you really want to take that chance?

 

[disneysteve]

The custodians that administer the IRA report what RMDs are due each year as well as how much has been taken.

This.


I inherited an IRA last year. In January, I got a message from Vanguard informing me that I had to start distributions this year with a link to their site where they walk you through the process. I haven't heard from them again yet, but I suspect at some point in the year I will if I haven't yet taken the RMD.

 

[statsman]

I inherited an IRA last year. In January, I got a message from Vanguard informing me that I had to start distributions this year with a link to their site where they walk you through the process. I haven't heard from them again yet, but I suspect at some point in the year I will if I haven't yet taken the RMD.

Yes, you will. Speaking as someone who has had an inherited IRA for the past 10 years with Vanguard. Even with a rather small RMD, they let you know.

 

[disneysteve]

Yes, you will. Speaking as someone who has had an inherited IRA for the past 10 years with Vanguard. Even with a rather small RMD, they let you know.

I fully expected that to be the case.

 

[livingalmostlarge]

But what happens if you ignore it and don't take an RMD? How will the IRS know? Someone asked me that seriously. You don't declare it on your taxes because you do turbotax. You do it yourself and say no. And you get over 72 and never take RMDs what happens?

 

[cathy63]

But what happens if you ignore it and don't take an RMD? How will the IRS know? Someone asked me that seriously. You don't declare it on your taxes because you do turbotax. You do it yourself and say no. And you get over 72 and never take RMDs what happens?

The IRS has everything they need to figure out if someone is taking their RMDs. Every year, they get a 5498 for each IRA account and a 1099-R for each IRA account that had a withdrawal. For each SSN, they can add up all the box 12bs on the 5498s for IRAs to get the total required RMD, and all the box 1s on the 1099-Rs for IRAs to get total withdrawals. If the first is greater than the second, the taxpayer has not met his RMD requirement. Repeat for 401ks, inherited IRAs, and any other account type that has an RMD.

Even if you never file a tax return (and there are many, many people who are living entirely off SS and RMDs whose income is so low they are not required to file a return), the IRS will still know if you don't take your RMDs.

Now what if you haven't taken your RMDs and the IRS doesn't do the math and send you a letter? Well in that case, you will get away with it until they finally notice. When they do notice, you have to take all the missed RMDs and the penalty is half the amount you should have taken, plus I guess some interest. There's no statute of limitations on this like there is for other audits, so you can't assume that if it's been more than 3 years you're in the clear for older returns. They can go back all the way to the year you were supposed to start taking RMDs. Also, if you die, the obligation follows the account and your heir is required to rectify the situation and take the RMDs you failed to take while alive.

 

[SecondCor521]

But what happens if you ignore it and don't take an RMD? How will the IRS know? Someone asked me that seriously. You don't declare it on your taxes because you do turbotax. You do it yourself and say no. And you get over 72 and never take RMDs what happens?

The enforcement mechanism is essentially that the IRA custodians are required to collect all the information necessary to determine whether or not you're required to take an RMD. They report this to the IRS, so the IRS knows you're supposed to take $X in RMDs. The IRA custodians also report how much you actually took.

So the IRS has all the information needed to determine whether or not you're supposed to and did or did not take it. It's not really an honor system.

I'm not sure how much the IRS actually enforces the 50% penalty, but I bet that would be high on their enforcement to do list. 50% penalties on people with RMDs could be a lot of revenue.

 

[Gumby]

You might also want to review 26 U.S.C. Sec. 7201, which reads

"Any person who willfully attempts in any manner to evade or defeat any tax imposed by this title or the payment thereof shall, in addition to other penalties provided by law, be guilty of a felony and, upon conviction thereof, shall be fined not more than $100,000 ($500,000 in the case of a corporation), or imprisoned not more than 5 years, or both, together with the costs of prosecution."


It would really suck to be in prison.

 

[RunningBum]

But what happens if you ignore it and don't take an RMD? How will the IRS know? Someone asked me that seriously. You don't declare it on your taxes because you do turbotax. You do it yourself and say no. And you get over 72 and never take RMDs what happens?

I don't know how or if the IRS knows. The penalty is 50% of the RMD if you don't take it. I'd rather just follow the tax laws and sleep well at night. Plus I don't want to be known as a tax cheat. Maybe you don't care.

 

[MissMolly]

But what happens if you ignore it and don't take an RMD? How will the IRS know? Someone asked me that seriously. You don't declare it on your taxes because you do turbotax. You do it yourself and say no. And you get over 72 and never take RMDs what happens?

If you will read my post #5 I clearly stated, "The custodians that administer the IRA report what RMDs are due each year as well as how much has been taken".

 

[livingalmostlarge]

I have my answer for my friend. Me I like to sleep. But when asked seriously I was floored. I just supposed it is possible to never get caught