Beneficiary IRA – Tax question

L1: Beneficiary IRA – Tax questionIndividual age 74 dies in October. Has not yet taken MRD for that year. Beneficiary takes the MRD by 12/31 based on decedent”s life expectancy, however, proceeds paid to beneficiary. Who is responsible for reporting the IRA distribution that year, the 74 year old decedent or the beneficiary?2006-07-17 14:00, By: Bene, IP: [24.172.244.211]
L2: Beneficiary IRA – Tax questionBE CAREFUL. INHERITED IRA REGULATIONS ARE VERY TRICKY. CONSULT A QUALIFIED TAX PROFESSIONAL.
Distributions from retirement plans are taxable income to the person receiving the distribution. Since the person died before taking his RMD for the calendar year, the beneficiary is required to take the Required Minimum Distribution for the calendar year BEFORE the balance can betransferred to an “INHERITED IRA indecedent”sname FBO MARY JONES, BENEFICIARY”name, and must includethe RMD distributionin the beneficiary”s taxable income, and pay taxes on it.
If the beneficiary is the spouse, she still must take the RMD, and it will be included in the final joint income tax return of the couple. Then she has various options depending upon whether or not the decedent had reached April 1 of the year after reaching 70 1/2 (“Required Beginning Date”). If before RBD, then distributions are based upon surviving spouse”s remaining life expectancy, and start when she reaches RBD. If after RBD, the longer of surviving spouse”s life expectancy or deceased owner”s remaining life expectancy.
Beneficiaries can take distributions at any age without being subject to the 10% early withdrawal penalty usually imposed for distributions before 59 1/2. Death of theowner is one of the exceptions to the penalty.
Distributions must begin by the end of the year following the year of death. (In the year of death, there was the RMD, if applicable.) But, there are 3 exceptions to this rule. First, if the surviving souse is treated as the owner because it is rolled into her IRA or an Inherited IRA for her benefit, then no distributions are required until she reaches her RBD. Second, if the spouse is the sole beneficiary, then distributions can be postponed until 12/31 of the year in which the owner would have reached 70 1/2. Finally, non-spousal beneficiaries can use the rare alternative of distributing the entire balance at any time, or periodically, so long as the entire balance is distributed by the end of the 5th year following the year of death.
There is a separate chart (Joint and Last Survivor Table in IRS Pub 590, Table II in Appendix C) used for calculating the RMD if the owner”s sole beneficiary is a spouse more than 10 years younger than the owner.2006-07-17 15:48, By: dlztaxes, IP: [4.175.9.167]

L2: Beneficiary IRA – Tax questionSince this is a SEPP 72-T forum, you might be asking a different question — What happens to SEPP 72-T IRA (or 401-K) when the taxpayer dies?
I DON”T KNOW, AND I”M NOT SURE IF THE IRS DOES EITHER !!!
TheIRA general rules indicate that there is an exception from the 10% penalty is distributions are being taken after the death (or disability) of the employee. A different exception under these regulations is the one allowing SEPP 72-T distributions to avoid the 10% penalty also.
But there does not appear to be any guidance as to what happens to the SEPP 72-T “PLAN” when the taxpayer dies. Is the surviving spouse/beneficiary required to continue the “plan”, or can he/she terminate the plan without penalty, or without the 10% penalty on the cumulative distributions by the employee before his death? What if the “plan” was a joint account ? And I”m sure there are more, including similar questions in case of divorce, and the account being transferred to an ex-spouse.
I have forwarded the questions related to the effect of “death” and “divorce” on SEPP 72-T plansto my contacts at the IRS in DC. Hopefully we will get a response, and guidance, at some point.2006-07-17 16:55, By: dlztaxes, IP: [4.175.9.167]

L2: Beneficiary IRA – Tax questionThe exemption at death or disability would also apply at the death or disability of the owner of the 72t plan. All that has to be met is one (or more) of the exemptions in order to avoid the 10% penalty.
At death or disability the SEPP exemption would stop and the other would apply.
2006-07-17 17:05, By: Gfw, IP: [172.16.1.71]