by I was talking to my client yesterday. Let’s call her Mary.
Mary recently inherited an IRA from her sister.She wanted to make some changes to the inherited portfolio. I told her to speak to her CPA before we tie up any funds as this was her only IRA to take the required minimum distributions she was obligated to. A few days later she called me back she said her CPA insisted that she was required to remove 20% a year starting immediately and had to completely deplete the portfolio within 5 years. I was surprised to hear this because it did not ring true. The nerd in me directed my fingers to www.IRA.gov and the truth unfolded. According to publication 590 page 36 Mary was not required to immediately begin depleting her account. Here’s what the IRS says;
“Death before required beginning date. The entire account must be distributed by the end of the fifth year following the year of the owner’s death. No distribution is required for any year before that fifth year”
In other words Mary’s CPA was wrong on two counts.
1- She was not required to begin her first distribution until the year After death.
2- She was not required to begin the 20% distribution immediately. If there was a compelling reason to keep the funds intact, she could do so and withdraw the entire portfolio in the fifth year following the year of death.
I of course suggested that she bring this detail back to her CPA for his blessing as I pointed out that I’m not permitted to give tax advice.
I explained that if he still insisted he was correct I said she may wish to hire a new tax advisor.