Bank Investment Consultant

Minimum distributions must begin as of the end of the year following death, and the amounts are based on the individual beneficiary's life expectancy, based on his birthday in the year after death.

...and if distributions over the beneficiary's life expectancy have not begun as of the end of the year following the participant's, distributions must be completed by December 31st of the fifth year following his mother's death. Probably penalties apply for him not taking distributions, but I'm not sure how those work.

As long as he was a named beneficiary on the IRA, then Erik's 1st post is correct.  If there was no designated benficiary and mom's estate was thus the defacto benficiary, then the 5 year rule does apply.

However, I may differ with Erik's 2nd post in that I recall reading a recent PLR that allowed the benficiary the stretch even though the beneficiary did not begin taking distributions the year after the year of death.  I believe interst and penalties were due but again was allowed the stretch.  That's about all I remember but you may want to investigate it further. 

nobdforme,

I believe the PLR you're referring to is PLR 200811028. It's possible to try to cross-apply it to this situation, although the increased number of years in this case will make it more problematic and costly. Realistically, the client would probably need to try to get his own PLR in this case, which may not be worthwhile depending on the size of the IRA.

Given that the mother died before her required beginning date, and distributions did not begin in the year following the year of death, the account should have been liquidated by December 31st of the 5th year after death. At this point, technically the entire account is a failed required minimum distribution, and the client may need to seek a waiver from the IRS just to avoid a 50% penalty on the entire account balance as an insufficient RMD.

If the original poster wants to get in touch with me offline at michael@kitces.com, I can provide a referral to an accounting firm that helps to unwind particularly complex botched IRA problems like this, including PLR support if it turns out to be necessary and appropriate.

I hope that helps a little!

Respectfully,
- Michael E. Kitces, MSFS, MTAX, CFP(r), CLU, ChFC
Publisher, The Kitces Report, www.kitces.com
Blogger, Nerd's Eye View, www.kitces.com/blog

Mike, here is a reply which is similar to yours but I see here that the single life expectancy payout method is the "default rule". One option might be to cash-in the account and pay  two years penalty for the 6th and the 7th years. 

When a Beneficiary Misses the First Year's RMD 

by Natalie Choate | 09-12-08   

http://advisor.morningstar.com/articles/printfriendly.asp?s=0&docId=15644&print=yes  

Notice that the IRS ruling, mentioned above, did not wave the 50% penalty.

Excerpt:

The bottom line: The best advice is for IRA owners to set things up so their beneficiaries will have immediate access to the information they will need and won't get into the kind of problems Suzanne has. One way to do that is for each of us to fill out forms such as those provided in the book The Beneficiary Directory by Mark H. Kaizerman (www.beneficiarydirectory.com).