Inherited IRA
Sister A dies while in distribution phase of IRA and Sister B inherits the IRA. She follows the rules to continue the IRA and the distributions as required. Sister B now dies and successor beneficiary is told by the insurance company, who is the custodian of the IRA, that the remainder of the IRA must be distributed immediately as a lump sum. Is this correct? Are there other options?
Tom
Permalink Submitted by Kristin Kippen on Wed, 2008-01-30 23:55
Sister B’s beneficiary is entitled to continue the MRD based on Sister B’s life expectancy. On page 178 of Ed Slott’s book “The Retirement Savings Time Bomb” it references this situation. It says “…if your beneficiary has a 40-year life expectancy but dies after three years, the next beneficiary should be able to continue RMDs over the remaining 37 years. But if the bank forces the account to be emptied after your beneficiary’s death, the remaining 37-year stretch will be lost.” So if the insurance company refuses to let the beneficiary of Sister B continue the distributions over Sister B’s life expectancy, they can choose that. However, it is in the IRC that Sister B’s beneficiary should be able to continue the payout based on Sister B’s life expectancy. So the bank cannot hide behind “well the IRS tells us it has to be done that way” because the IRC says it can be paid out over sister B’s life expectancy.