Help needed with inherited IRA rules - messed up timeframe

Thanks for the detailed explanation. This is really helpful. Do you know if they'll need to empty the entire account now, or can they just start taking the correct distributions going forward? And with the $118k, roughly how much would they owe in penalties if the IRS doesn't grant the waiver?

You don't need to empty the entire account at once - you can start taking the correct RMDs going forward. The IRS generally allows you to correct the mistake by beginning proper distributions now. For the penalty calculation, it depends on what your annual RMDs should have been. For example, if you should have withdrawn $5,000 each year and missed 7 years, that's $35,000 in missed RMDs. The penalty would be 50% of that, so potentially $17,500. However, the IRS has a good track record of waiving these penalties when people correct the mistake and explain the situation, especially when there was no malicious intent to avoid distributions.

Did they actually help with the whole process or just tell you what to do? I'm in a similar situation with an inherited IRA from my aunt (about $65k) that I've completely ignored for 3 years because I didn't understand the rules.

I'm curious about this too. How much does it cost? Did you still need a separate tax person to file everything or did they handle the whole thing? Some of these online services just give advice but don't actually do the work.

They actually walked me through the whole process - not just advice. Their system helped me generate all the required forms and even the explanation letter to the IRS. They provided step-by-step instructions for exactly what to file. They have different options depending on what you need. I chose to have them handle the analysis and documentation, then I took everything to my regular tax preparer who filed it with my return. Some people have their own tax preparers handle the filings, others use the service to do everything. It's flexible based on your situation.

Wait, so this service just sits on hold with the IRS for you? How does that actually work? Do they just call you when someone answers? I've been trying to reach someone about a similar inherited IRA issue for weeks.

This sounds like BS honestly. The IRS doesn't prioritize calls so how would this service get through any faster than I would? I've been on hold for 3+ hours multiple times and just gave up. Seems like they're just charging for something that probably doesn't work.

It's pretty simple - they have a system that waits on hold for you. When an IRS agent answers, they connect the call to your phone. You don't have to sit listening to hold music for hours. I was super skeptical too. I'd already wasted about 6 hours across multiple days trying to get through. I figured it was worth trying since I couldn't afford to keep spending hours on hold during work days. I got connected to an IRS agent in about 37 minutes while I was just going about my normal day. They texted when the agent picked up, and within seconds I was talking to a real person who helped with my inherited IRA questions.

Thank you so much for this warning about not rolling it into our own accounts! I honestly might have tried to do that thinking it would simplify things. Do you happen to know if we can just start taking the correct distributions now, or do we need to "catch up" on all the ones we missed over the past years?

You don't need to "catch up" by withdrawing all the missed distributions at once. You should calculate what you should have taken each year, but going forward you just need to start taking the correct annual distributions based on the appropriate life expectancy table. What you DO need to do is file Form 5329 for each year you missed a distribution, request the penalty waiver on each form, and include a letter explaining that you didn't understand the RMD requirements. Then start taking the correct annual distribution this year. Most financial institutions that hold IRAs can help calculate your required distribution amount.

I used H&R Block software (not the in-person service) last year to handle my missed RMDs on an inherited IRA. It worked fine for generating the 5329 forms, but it didn't help with the waiver request letter or calculating what my distributions should have been. I ended up having to research those parts separately.

Thanks for sharing your experience! Sounds like I might need some additional help beyond just the tax software to get the calculations right. I'll look into what supplemental services might help with those calculations while still using the software for the actual filing.