Inherited IRA by two nonspouse beneficiaries after deadline
The original traditional IRA owner passed away on 8/9/2005. The deceased RMD for 2005 was automatically taken out by the bank and deposited in another non-IRA account owned by the deceased. The same was true in 2006. Now the two primary beneficiaries want to convert the original traditional IRA into two separate inherited IRA’s. Because this conversion is not taking place in the year following the death of the original owner (2006) how are the required minimum distributions, for the two beneficiaries, calculated? What other problems do they have to consider?
I know that the Disclaimer option is not available since the nine month period has already expired.
I also know that since the deadline was not met, the end of the year following the year of the original owners death, that the separate account treatment option has expired. Therefore they must use the oldest co-beneficiary age for determining the RMD.
What I am not sure of is what age to use for lookup in the Single Life Expectancy Table (because it is now past the end of the year following the year of the original owners death).
What options are available if the custodian does not allow stretch inherited IRA’s?
How come custodians are not required to support all options that the IRS allows for inherited IRA’s?
thanks,
Permalink Submitted by Alan Spross on Wed, 2007-12-12 00:12
An IRA custodian is required to include the RMD provisions of Sec 401A(9)b in their agreement, which allows for designated beneficiaries to elect life expectancy distributions. It sounds like this custodian has messed up several issues. If the beneficiaries were properly designated, it makes no sense for the custodian to deposit post death distributions into any account other than those directed by the designated beneficiaries as a beneficiary controlled distribution.
I suggest that the separate accounts be requested with the current custodian, the current year RMD based on Table 1 distributed, using the oldest beneficiary’s single life expectancy divisor for 2006 less 1.0 for 2007 for both IRAs (for the reasons you cited), and then possibly transferring the accounts directly to another IRA custodian. There may not be time to analyze the IRA agreement at this point and still get the 2007 RMD out prior to year end.