The IRS has issued several rulings indicating that the errors of a parent need not penalize a child who inherits an IRA.
In one case, a father named his daughter as IRA beneficiary. When he turned 70-1/2, the required beginning date (RBD) for minimum distributions, he elected to take required distributions on a single-life basis. Thus, when he died his IRA had run out because his single-life had no more life expectancy. The tax law apparently required the daughter to clear out the IRA by the end of the following year.
However, the daughter requested permission to stretch out distributions over her remaining life expectancy and the IRS agreed. The father had named a beneficiary (the daughter) by the required date so he could have taken distributions over two lives. Instead, he chose to take larger-than-required distributions each year. These large distributions did not deprive the daughter of the ability to stretch distributions from the inherited IRA over her own remaining life expectancy.
Thus, if you’re in a similar situation you probably can stretch out distributions even if the IRA owner made such an error.
