Inherited IRA in 2021 and didn't know about Required Minimum Distributions - what now?

You've hit on a common issue with inherited IRAs - the RMD rules trip up a lot of people! Since you inherited this IRA in 2021, you fall under the SECURE Act rules, which means non-spouse beneficiaries generally have to empty the account within 10 years. Unfortunately, the IRS is pretty strict about RMDs for inherited IRAs. Missing an RMD typically results in a 25% penalty (used to be 50% but was reduced) on the amount you should have withdrawn but didn't. However, there's good news - the IRS has provided relief for beneficiaries who inherited IRAs between 2020-2022 due to confusion about the new rules. Your best option is to file Form 5329 for each year you missed an RMD and request a penalty waiver by attaching a letter explaining you weren't aware of the requirement. Write "RC" (reasonable cause) on the form where the penalty would normally be calculated and include a brief explanation. You'll still need to take the missed distributions, but you might avoid the hefty penalties if the IRS accepts your waiver request.

I went through exactly this nightmare last year! I had inherited my mom's IRA in 2020 and had no idea about RMDs until my tax guy mentioned it casually in 2023. I was freaking out about all the penalties! I found this amazing service called taxr.ai (https://taxr.ai) that literally saved me thousands in penalties. They analyzed my situation, helped me understand exactly which forms to file, and even generated the letter requesting penalty waiver based on my specific situation. The best part was they showed me exactly how to calculate the correct RMD amounts for each year. Their system even helped me properly document everything so I could prove to the IRS that my mistake was unintentional. Way better than the generic advice I was finding online that didn't apply to my specific inheritance situation.

Update on my situation: I was really skeptical about taxr.ai when I first saw it mentioned here, but after getting quoted $1,800 by my local accountant to fix my own inherited IRA mess, I decided to give it a try. Honestly, it was surprisingly good. The system actually found that I qualified for an exception I didn't know about (my mom was already taking RMDs before she passed away) and showed me exactly how to document everything. The letter it generated for the IRS was super detailed and cited all the relevant tax codes. Just got confirmation last week that the IRS accepted my penalty waiver request. What I really appreciated was that it didn't just solve my immediate problem but taught me how to handle the RMDs going forward so I don't mess up again.

If you're struggling to get answers from the IRS about your RMD situation, I'd recommend trying Claimyr (https://claimyr.com). I was in a similar situation with inherited IRA penalties and couldn't get through to the IRS for weeks. Watching their demo video (https://youtu.be/_kiP6q8DX5c) convinced me to try it. They got me connected to an actual IRS agent in about 20 minutes when I had been trying for days on my own. The agent was able to explain exactly what forms I needed and confirmed that I could request a penalty waiver. They also told me I could set up a payment plan for any taxes due from taking multiple years of RMDs at once. Having an actual conversation with someone at the IRS about my specific situation was way more helpful than trying to piece together information from different websites.

Ok I have to eat my words on this one. After calling the IRS 6 times myself and never getting through (always got the "call volume too high, try again later" message), I decided to try Claimyr yesterday. Within 45 minutes I was actually talking to a real person at the IRS. The agent confirmed exactly what I needed to do for my missed RMDs from my inherited IRA - file Form 5329 for each year with "RC" marked, include my explanation letter, and take all missed distributions now. The agent even gave me her ID number to reference if I had follow-up questions. Definitely saved me days of frustration trying to get through, and now I have a clear plan to fix my situation without guessing.

Just a heads up - the rules for inherited IRAs changed significantly with the SECURE Act. If you inherited the IRA from someone other than your spouse after January 1, 2020, you generally have to empty the account within 10 years. However, there's confusion about whether annual RMDs are still required during those 10 years. The IRS initially said no RMDs were required until year 10, then changed their guidance. That's why they've been offering penalty relief for 2021-2022. Make sure you check if you're an "eligible designated beneficiary" (spouse, disabled/chronically ill person, not more than 10 years younger than deceased, or minor child of deceased) as different rules apply.

Has anyone successfully gotten the penalty waived by filing Form 5329 with the "reasonable cause" explanation? I'm in a similar situation (inherited in 2019, didn't take RMDs for 2021-2023) and wondering if it actually works or if the IRS just denies these requests.

I'm dealing with a very similar situation right now! Inherited my grandmother's IRA in 2021 and just discovered I've been missing RMDs. Reading through everyone's experiences here has been incredibly helpful. One thing I wanted to add - when I called my IRA custodian (Fidelity), they were actually pretty helpful in calculating what my missed RMDs should have been for each year. They have worksheets and can walk you through the calculations based on your account balance and the IRS life expectancy tables. Also, something to keep in mind - if you're taking multiple years of RMDs all at once in 2024, you might want to consider spreading the withdrawals across a few months rather than taking it all in one lump sum. It won't change the tax implications, but it might help with managing the cash flow and any potential investment timing issues. The penalty waiver route seems to be working for people, especially given all the confusion around the SECURE Act changes. I'm planning to file Form 5329 for each missed year once I take my distributions.