inherited ira’s (follow-up to 2/23/08 18:16 post)
person dies on 12/01/07. 2 children are beneficiaries (IE: ages 35 and 30)
beneficiaries want to split up IRA’s 50/50 with proper retitleing (IE: John doe deceased 12/01/07 FBO jim doe).
bank agrees but insists on new CD rate (2.5% lower rate, so on a 100,000 CD $2,500 in interest would be lost per year)
questions: #1A: If the children don’t split up CD until it expires (IE: in 2010) does account still need to be retitled before 12/31/2008? It seems it needs to be done in order for IRS to have social security numbers. Obviously the RMD would also need to be done by 12/31/2008 based upon the 35 year old (older beneficiary)
#1B: If yes, does the retitled account need to be done like this:
John Doe deceased 12/01/2007 FBO Jim and Joe Doe equal beneficiaries?
thank you……………
Permalink Submitted by Alan Spross on Tue, 2008-02-26 22:19
Note: This post should have been added to other thread for continuity.
Yes, good point, it should be retitled. But that in itself along with naming successor beneficiaries will likely cause the bank to pull the beneficial CD yield. The bank is also looking at those annual RMDs as inconsistent with a CD. I think the beneficiaries need to insist on talking to a higher authority at the bank and try to work out a compromise or at least determine what their options are. For example, what is the effective date the bank will attempt to change the rate, upon owner’s death, the date they re- title, the date of first RMD, or what? Do they intend to add insult to injury by charging an early withdrawal penalty as well? There are no IRS Regs. to provide the children here with any leverage at all, but perhaps there might be something about this buried in the state banking Regs.
If they could be talked into maintaining the rate, perhaps the tradeoff the children could offer would be to pay early withdrawal on the RMD requirement for 08 and 09.
For the record, I would not be overly optimistic about the IRS waiving excess accumulation if the children decided to not take any RMDs until 2010 and then request waiver of the penalty because of the CD conditions. But it’s risk-reward option to consider since the RMDs are only a tad over 2% each year. With no distributions there would be no 1099R forms generated.
Your final question about proper title format – your suggested wording would be fine or the beneficiaries could be listed first. The successor beneficiary of each child must also be properly reflected also.
Permalink Submitted by William Tuttle on Wed, 2008-02-27 04:31
And why this bank?
This is an inherited IRA and the ages of the beneficiaries are 30 and 35, I would not be advising them to leave this in CDs.
The bank has already demonstrated that they do not value their business.
I would set up the inherited IRAs at Vanguard, Fidelity, T. Rowe Price, American Funds, etc… Liquidate the current CD, do direct rollovers to the other institution.
Hopefully, they are going to take nothing more that the RMDs and allow this money to grow for retirement. Initially their RMD % is going to be around 2%. Clearly allowing for substantial growth in the portfolio.
Especially if that portfolio is well diversified with a reasonable assset allocation. The simplest would be target retirement funds (2040/2045). Vanguard and T. Rowe Price being two of the better ones.
The added advantage is they will automate the RMD process to ensure you always take the correct amount by the required dates.
Permalink Submitted by larry shinder on Wed, 2008-02-27 19:06
Gentlemen: thank you for the info.
I did check with the OCC (Comptroller of the Currency) because this is a national bank.
They said that the bank can do what they want.
I figure there are 2 options now:
A) transfer trustee to trustee (whether a bank CD or Vanguard type company)
or
B) hold off making any move until December, as retitleing is not needed yet.
I just wonder if the CD was at 3% and the current was 6% if they would say the same thing.