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Author: TMFPMarti Big funky green star, 20000 posts Home Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121219  
Subject: Re: Inherited IRA question Date: 11/19/2009 4:01 PM
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The RMD does not have to be taken (it can be waived) in 2009 for your 2008 inherited IRA, even if non-spousal. I confirmed this with my broker and the RMD suspension rule for this year and last year - just within the last few days.

Either you mistyped or they were proving why their fine print says not to rely on them for tax advice. RMD's were not waived for 2008, only for 2009. For example, someone whose required start date was 4/1/2009 still had to take the distribution for 2008 based on the 12/31/2007 balance, but does not have to take one for 2009 based on the 12/31/2008 balance. See page 34 of Pub 590.

Unless Congress extends that exemption of RMD again, you do not have to take the RMD this year but will start in 2010 (you should get notified in January 2010 what the amount will be by your brokerage account holding the inherited IRA) and it should be based on the value of the IRA at the end of the year you inherited it.

Congress has already said they're not waiving again.

You're incorrect about annual RMD's. They're always based on the prior year-end balance.

Also if you are or become disabled, get publication 524 for some additional rules as the penalties are waived etc.

Inherited IRAs are never subject to the premature distribution penalty. Pub 590.

In my case, the end of year value of the Inherited IRA for 2008 helps reduce the RMD amount because the amount of the IRA I received was down over 50% on 12-31-08 compared to when I inherited it in May, 2008. It may help you too.

I think I see where you got the idea that RMD's were generally waived for 2008. In your specific case the IRA owner died in 2008, meaning that your first RMD as a beneficiary was for 2009 since none was required the year the owner died. This was not a special provision for 2008, but is the standard treatment for inherited IRAs in your situation.

I'm also exploring another area of IRS Regulations that I'm not sure are applicable to you or myself but the NUA (net unrealized appreciation) in IRS Publication 575 for 2008 may allow you to take a lump sump of that Inherited IRA and reduce the tax amount, which may make sense if you need to free up some funds. Make sure you get the publications for the year inherited it.

NUA has to do with employer stock held in an employer plan and is not applicable to anything having to do with IRAs, inherited or non. In fact, the first advice to someone considering making use of NUA is "Don't roll the stock into an IRA."

Phil
Rule Your Retirement Home Fool
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