Combined inherited IRA’s
My two siblings and I each inherited from our dad(81) one third of each of two different IRA accounts held by the same financial institution. One account was an IRA Rollover and the other account (under 50K) was an inherited account, which my dad had inherited years ago from a friend. Unfortunately, when these accounts were distributed this year to me and my siblings, the company holding them combined the two accounts since the smaller account was invested in the same money market fund as the bulk of the larger account.
Is this a problem when it comes to the annual RMD? Am I correct in thinking that my dad’s life expectancy should be used for the previously inherited account balance and our own life expectancies used for the IRA rollover account? After this year, there will be no way to discern the two balances.
Permalink Submitted by Alan Spross on Wed, 2008-10-29 20:05
Not sure what you mean by “distributed to you and siblings”. A distribution is a taxable event when assets come out of the inherited IRA.
If you mean simply retitled as an inherited IRA, you indeed have a problem caused by the negligence of the custodian if they did this without your authorization. As you indicated, the RMD schedule on the account your father inherited from a non spouse must continue using his non recalculated life expectancy. Having commingled these two accounts, the RMD for the combined account must be based on the shorter of the distribution schedules, and I am afraid that this will cost you and your siblings a large part of your stretch.
I would advise the custodian that they need to rectify their error as long as none of you authorized the combination. Perhaps they could figure the earnings change and separate the accounts by direct transfer, as that is the only way that the IRS will not be brought into the mix.
Another solution is for them to pay for a private letter ruling requesting that the IRS authorize the separation of the account back into two accounts, where you could get the stretch on what is probably the larger one.
And don’t forget that you each need to create separate accounts no later than the end of the year following the year of your father’s death in order to apply your own life expectancies on the rollover portion. Otherwise, the life expectancy of the oldest will apply to all of you.
Permalink Submitted by Ilene Plave on Mon, 2008-11-03 21:08
The custodian has agreed to separate the accounts into a total of 6 (2 for each of 2siblings and myself), acknowledging that they were responsible for the error. Once the previously inherited inherited account of my dad’s is separated out of the mix, do my siblings and I each use the 82 year old factor of 17.1 from the Uniform Life time Table since that is how old my dad would be in 2008 if he were still alive, in order to calculate our individual RMD”s of these accounts?
Permalink Submitted by Alan Spross on Mon, 2008-11-03 22:47
If your Dad passed in 2007, and would have been 81 at year end, then the RMD for the previously inherited account would be calculated using Table I, which is the table your Dad should have used. However, you need to find out the year your Dad inherited it, and each year thereafter the divisor is reduced by 1.0.
For example, if he inherited at 74 and his first RMD year he was 75, his initial divisor would have been 13.4. Each year thereafter the divisor drops by 1.0. For 2008, it would be down to 6.4.
HOWEVER, if your Dad inherited the IRA from someone YOUNGER than himself, who died on or AFTER his required beginning date, your Dad would then have used the decedent’s remaining life expectancy, not his own. You would continue that and your RMD would be lower if that were the case. Looks like you have some research to do here, but if you cannot determine this info, you can then use your Dad’s remaining life expectancy as above and be in compliance. This applies to all siblings, with or without separate accounts.
The other IRA, where you are not successor beneficiaries, the separate accounts will enable you to each use your own respective life expectancies using Table I, with the 10.0 reduction each year.
Finally, you must take any RMDs this year that your father neglected to take for his year of death or earlier. Those would be paid to you and taxable to you.
Permalink Submitted by Ilene Plave on Wed, 2008-11-05 16:18
My dad died 7/7/07 already having turned 81. The friend from whom he inherited this IRA died 7/17/96 and was older than my dad. Since my dad was 70 when he inherited this account and his friend must have been taking distributions, I assume my dad took his first distribution in 1997 at 71 years old. Using Table 1, it appears he would have started at a factor of 16.3. Reducing this by 1.0 each of 11 years we arrive at 5.3 in 2008. Is this correct? Should all 3 of us use this factor?