IRS Notice 2002-27 Has a Gap in It

The balance grew. Every quarter, same login, same screen. The inherited IRA your mother left you sat there looking healthy. Nobody called. Nobody emailed. Nobody sent a letter.

That silence was legal.

Your broker has a job. When your own traditional IRA hits the age where you must take money out, your broker sends you a notice. By January 31. Every year. The IRS wrote that rule into Notice 2002-27. Brokers must tell owners when a distribution is due.

Same broker. Same firm. Same login screen. The inherited IRA sitting one tab over? Silence.

The IRS does not require your broker to send that notice on an inherited account. When the final regulations landed in July 2024, the IRS said it plain:

Sure.

Your broker read that sentence. Your broker stayed quiet. Your broker followed the rules.

Here is the clock your broker didn't mention.

Congress passed the SECURE Act. It killed the old "stretch" IRA. If you inherited an IRA after 2019 and you're not a spouse, a minor child, disabled, chronically ill, or close in age to the owner, you get ten years to empty it. That's it.

But it's worse than "empty it by year ten." It depends on whether your parent had already reached the age where distributions were required. If they had, you owe annual pulls in years one through nine. Then you drain the rest in year ten. If they hadn't, you just empty the account by year ten. The IRS itself called this calculation complex enough to excuse brokers from doing it.

Now. The IRS spent four years waiving the penalty for missing those annual pulls. Notices in 2022, 2023, and 2024 all said "no penalty yet." Four years of official silence trained heirs to do nothing.

The waivers ended. 2025 is live. The silence continued.

Your broker still didn't call.

You missed the distribution. The penalty is 25% of the amount you should have taken. Not 25% of the account. 25% of the gap between what you pulled out and what you owed.

There is a correction form. Form 5329. If you take the missed distribution and file within two years, the IRS cuts the penalty to 10%. But your broker doesn't send you Form 5329. Your broker sends a balance statement. The balance looks fine.

The balance is the trap.

And the IRS penalty is just the first hit. The second one comes from a place nobody is watching.

Medicare prices your monthly premium based on your income from two years ago. They call it IRMAA. It works like a cliff, not a slope. One dollar over the line and your premium jumps.

So picture the heir who panics in year ten. Dumps a $600,000 inherited IRA into one tax year. Two years later, that income spike shows up on the Medicare bill. Up to $487 a month per person. Part B alone. A couple pays nearly $12,000 in extra Medicare costs for that year. One lump distribution. One tax year. One cliff.

I mean. Look.

The instinct here is "I'll appeal." Medicare has a form for that. SSA-44. You file it when a life-changing event caused the income spike. Job loss. Divorce. Death of a spouse. Those count.

But an inherited IRA distribution is not a qualifying life-changing event. It sits on the same exclusion list as Roth conversions. The SSA doesn't care why you took the money. You took it. You cannot undo it. The last door is shut.

Heir: "Why didn't you tell me?"

Broker: "Read IRS Notice 2002-27."

Heir: "I'll appeal the Medicare surcharge."

SSA: "That's not a qualifying event."

Heir: "Then who was supposed to warn me?"

(silence)

The quarterly statement is still in your inbox. Open it. The balance is right there. Growing.

Nobody is going to call.