inherited IRA splitting accounts and keeping original term
My brother and I are beneficiaries on our father’s IRA, which will mature in 2010. We are seeking to split the account between us into two accounts while keeping the same interest rate until 2010. We were told by the bank that if they split the account now in 2008 we will get current interest rate instead. Is this the case or do we have a right to keep same terms as beneficiaries?
Thanks
Permalink Submitted by Alan Spross on Fri, 2008-11-21 21:15
There are no IRS regulations on this and the bank’s CD agreement or operating policies governs their decision. About all you can do is ask them what your options are unless the IRA or CD agreement contains provisions that address the death of the account owner.
Banks need funds now, so push for maintainence of the current rate if you can. If the bank will allow you each to name your own successor beneficiaries for your respective interests AND if they will release your RMD amounts without an early withdrawal penalty, you might consider waiving separate accounts if your ages are close.
A list of the factors you must address are:
1) The interest rate after his death
2) The status of your father’s RMDs if he was over 70.5, and the status of early withdrawal penalties for your beneficiary RMDs. The first one is due no later than 12/31 of the year following his death.
3) Separate IRA account rules. These ARE IRS rules which state them if you and your brother do NOT set up separate accounts or if the bank does not segragate your interests in a way that still constitutes a separate account, then the age of the oldest brother will determine the RMD divisor for both of you from here on.
4) You need to be able to name successor beneficiaries in the event of your premature death to control who gets each share.
5) These funds CANNOT be rolled over and any check made out to you will be taxable. You can only move the funds by direct transfer, so do not let the bank issue a check unless one badly needs the money now.
6) Any distributions for RMD or otherwise will be taxable to the respective beneficiary, NOT to your father’s estate. If your father ever made non deductible IRA contributions and filed Form 8606, you will each inherit the remaining basis and part of your distributions would be tax free. Check his recent tax returns for Form 8606.
7) If your father had any other IRAs for which you are also beneficiaries, your RMD can come out of the other IRA and cover both RMD requirements. In that case you could leave the CD IRA untouched till it matures.
Since many banks are in turmoil right now, you should sort out this information in your own minds in advance so you can concentrate on the most important factors when you talk to the bank. And try to deal with the most knowledgeable person available since most bank personnel will not understand most of the above complexity.