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I read this to say if MIL dies before 5 years the first couple of distributions my wife would have to take (over her lifetime) would be NONqualified and therefore taxable. This is a bad thing. I thought death overrode the 5 year rule.

You thought wrong. A distribution during the 5-year period is not a qualified distribution, regardless of the reason. See the discussion beginning on page 44 of Publication 590.

Remember, though, that there will be tax only on withdrawn earnings and that the taxable portion of a payment to a beneficiary is exempt from the 10% premature distribution penalty.

Phil Marti
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