Untitled Document

March 2024

IRS Guidance When an IRA Accountholder is Terminally Ill

The IRS does not require an IRA custodian to make the determination whether an IRA accountholder is terminally ill so that the individual does not owe the additional 10% tax.
In Notice 2024-2 the IRS made clear that an individual could withdraw the entire account balance under this exception as one may do when the disability exception is claimed.

An IRA custodian may choose to do so, but the IRS does not require it. If the IRA custodian does not make the determination that it will use code 2 in box 7, then the individual may claim the 10% tax is not owed by completing Form 5329.

A person who has taken a distribution on account of being terminally ill does have the right to repay any such distribution. There is a 3-year repayment rule that commences on the distribution date. An IRA custodian would want a special certification signed if a person wants to repay a terminally ill distribution.

An IRA custodian which chooses to report a person as being terminally ill for Form 1099-R purposes must have the following procedure. The individual must obtain a doctor’s certification that he or she is terminally ill and that he or she is expected to die within 84 months. The certification form must set forth the doctor’s name and contact information, the date of the examination of the person or other data and the doctor must sign and date the certification.