If a non-spouse beneficiary inherits a traditional IRA prior to the original owner reaching age 59 1/2 and the beneficiary chooses to take a single lump sum distribution, will the 10% early withdrawal penalty still apply?
Thanks
Nope.
No one thought I'd quit there, right? The beneficiary is subject to tax at their marginal rate, i.e. regular tax rate. If this will put them in the next bracket, they should consider taking distributions over a couple years. They do have the option to stretch the withdrawals over their lifetime, but your question implies they are choosing to take the money as fast as they can. If it's a large sum, that would be a shame.
JOE
Thanks Joe. I got a good hold on all of the 5 year, 1 year, and life expectancy rules for inherited distributions for both pre and post RMD situations, I just couldn't find anything on the early distribution penalty.
The client is still very much alive and hopefully a lump sum will not be necessary, he just wants to understand his options.
Thanks again
Okay, ten permit me to state the obvious (for other's benefit). Start with the life expectancy rule by taking the first withdrawal in time, and track the RMD. Each year, the beneficiary can always take out more. Good luck to you. JOE
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