deceased ira
Husband names wife as beneficiary of his IRA and three adult children as contingent beneficiaries in equal shares. She passes away a few days before he does, and the primary beneficiay of his IRA was not changed. Mutual fund said that the IRA has to be transferred to a deceased IRA with the three children as primary beneficiary. The father dies in the year he turns 70 1/2 and mutual fund says that the RMD’s must continue to be made to the three children.
If the IRA’s are divided up equally amongst the three children, the RMD’s have to be continued using the divisor established for the father. I believe this is correct, but would like corroboration. Also, are there other tax ramifications when the IRA is divided among the three children, and is what the mutual fund saying correct?
Permalink Submitted by Alan Spross on Tue, 2008-07-15 05:03
The children should be able to use their own individual single life expectancies if they create separate accounts prior to 12/31 of the year after their father died. Otherwise, they would all have to use the life expectancy of the oldest child. As the fund company indicated, they should first have the IRA re titled in beneficiary form, and then create the separate beneficiary accounts for each child.
The father passed prior to his required beginning date, so the first RMD required of the children must be taken by 12/31 of the year following his death, but the separate accounts should generally be created first. The father’s RMD is not a factor here.
Each distribution to the child will be taxable at the child’s marginal rate, unless the father had some non deductible contributions in his IRA as shown on his 8606 forms. In that case, some of the child’s RMDs would be less than 100% taxable. Also, each child should name their own successor beneficiary ASAP in case something should happen to them.