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This is where the confusion exists. After talking with the IRA administrator, she believes she was told that she could have it both ways: No RMD and no early distribution penalty. I verifying that my understanding was correct before talking with the IRA administrator.

<<butting in>> (i did read th Pub about eight times)

i think the age=71 makes it problematic

as i understand it, if the deceased were subject to RMDs, the inherited IRS is subject to them (but w/ inheritor's life table)

if not, then not. so if deceased was 69, survivor can have it both ways.

but 71 is more than 70.5 and RMDs kick in the year *following* age 70.5 --
so it depends on exactly when he turned 71 and when he died.

eg, turn 70.5 and 71 and die in same year -- no RMD (near as i can tell)
die in the year following and RMD maybe
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