DW’s (29yo) parents both passed away at relatively young ages, FIL in 2004 @ 50yo and MIL in 2014 @ 61yo. Long story short, both estates are a mess and are still open, but hopefully being wrapped up soon. As part of the estate, two Vanguard IRAs and one Vanguard/Fidelity 401K were located. All three accounts were originally my FIL’s and transferred to my MIL as inherited spousal accounts after his death. My DW and her brother were both listed as 50% beneficiaries of the three accounts. The two IRAs were split in half and my DW’s portion rolled over into a single inherited IRA at Vanguard in late 2019. A single RMD was taken for the year 2019 for just the IRA balance while we worked to get information and control of the 401K. While we were going through the process of claiming the 401K the employer changed their plan administrators from Vanguard to Fidelity and we had to start that process from scratch. The 401K was finally split in half and rolled over into DW’s existing Vanguard inherited IRA in 2020. The total value of the three accounts was about 500k (250k to each beneficiary). We were able to get all the end of year balances for the IRAs going back to 2014. The 401K balances have proven to be a huge pain. Fidelity only held the records for 2020 and all prior records still lived at Vanguard. We have been going in circles with Vanguard’s DC folks for weeks and spent countless hours on the phone trying to get information from them. We finally were able to get verbal confirmation on the year end balances, but are still waiting on actual statements. We are waiting for the statements to come through before we take any action, since our trust in Vanguard’s CSRs is all but gone, but I’m trying to get all of our ducks in a row now. I am only directly helping with DW’s portion, but will pass along as much info as I can to my BIL so he can make his own decisions on his portions.
I have read through the wiki, a bunch of old topics/posts, IRS 590-B, and everything else I can seem to find online. I was completely clueless about all of this when I first started, so I may be completely wrong about some of these assumptions. I am hoping the Boglehead community can offer some advice or corrections on my below thoughts/plan.
- We would like to treat the inherited inherited spousal IRA as a stretch, taking just the RMDs for the foreseeable future.
- My understanding is the 401K should not be affected by the Secure Act even though it wasn’t transferred over until 2020, the true date of inheritance was the MIL’s date of death in 2014?
- Both MIL and FIL died prior to their required beginning date so I think RMDs should be based on the beneficiary’s (DW) life expectancy according to Table 1 in IRS 590-B.
- DW was 24yo at the time of her mother's death and turned 25yo in the year after death. The 25 divisor of 58.2 would be used for the first RMD in 2015. Each year thereafter would be 1 less (57.2, 56.2, etc…)
- Since accounts were not properly divided in the first year, both DW and her brother are stuck using DW’s life expectancy since she is older.
- RMDs are owed going back to 2015. Amount would be based on the previous year’s end balance divided by 2 since DW and her brother are each 50% beneficiaries.
- The past due RMDs will be taken in 2020, however a specific RMD for 2020 is not required because of the Cares Act (she will elect to skip).
- Since RMDs are delinquent, there is a 50% penalty per RMD owed to the IRS.
- An appeal should be submitted for the penalty by writing a letter to the IRS explaining the situation, advising that it has been rectified, and by completing IRS Form 5329 for years 2015-2019.
- Form 5329 Part IX to be completed with a write in of RC and the amount missed for the given year in the margin of line 54 with $0 on line 54
We really appreciate any help or insights you can provide.
The next hurdle is to get all of DW’s funds into a proper AA, but one thing at a time.