Is this an Inherited IRA?

Submitted by Chris Lester on Wed, 2009-01-14 20:22

A client came in last night and they had an account titled as such BLANK STREET BK & TR CO TRUSTEE IRA A/C BLAH BLAH, When an account is titled this way is this deemed to have come from his deceased parents? Also what does the A/C stand for? Is there anything he can do with this account? If so what? Thanks in advance.



Submitted by Alan Spross on Wed, 2009-01-14 20:32

It depends on what the BLAH BLAH indicates. A propertly titled beneficiary IRA will show the name of the beneficiary AND the name of the decedent. It does not matter where the bank name shows in the process. A/C stands for account. If the new title does not show both his name and the name of the particular parent who died, it is probably not titled correctly.

He cannot roll over this account, but can change IRA custodians by doing a direct transfer to another custodian. He should definitely make sure that no check is made out to him or that amount cannot be rolled over and will be taxable.



Submitted by Linda Randazzo on Wed, 2009-01-14 22:47

Alan,

If an IRA participant comes in with a check made payable to them only such as John Doe IRA would we code this as a rollover contribution if it is eligible? (Not past the 60 day mark….)

Also, if the IRA participant came in with a check payable to ABC Bank F/B/O John Doe IRA participant would it be considered a transfer even though the person has possesion of it?

Thanks



Submitted by Alan Spross on Wed, 2009-01-14 23:22

Christofu2,
Correct that – A/C stands for “As Custodian (for)”

randazzi,
1) Here is a copy of the applicable IRS Reg:
>>>>>>>>>>>>>>>>>

Q–4: Is providing a distributee with a check for delivery to an eligible retirement plan a reasonable means of accomplishing a direct rollover?

A–4: Providing the distributee with a check and instructing the distributee to deliver the check to the eligible retirement plan is a reasonable means of direct payment, provided that the check is made payable as follows: [Name of the trustee] as trustee of [name of the eligible retirement plan]. For example, if the name of the eligible retirement plan is “Individual Retirement Account of John Q. Smith,” and the name of the trustee is “ABC Bank,” the payee line of a check would read “ABC Bank as trustee of Individual Retirement Account of John Q. Smith.” Unless the name of the distributee is included in the name of the eligible retirement plan, the check also must indicate that it is for the benefit of the distributee. If the eligible retirement plan is not an individual retirement account or an individual retirement annuity, the payee line of the check need not identify the trustee by name. For example, the payee line of a check for the benefit of distributee Jane Doe might read, “Trustee of XYZ Corporation Savings Plan FBO Jane Doe.”
>>>>>>>>>>>>>>>>>>>>>>

2) Yes, that would be considered as a transfer and not a rollover since the person cannot cash that check.



Submitted by Chris Lester on Thu, 2009-01-15 00:12

Thank you Alan, The Blah Blah was the clients name. So if I understand you correctly this is not titled correctly? and he could change custodians? Wouldnt the trustee control who the custodian is? or am I missing something?



Submitted by Alan Spross on Thu, 2009-01-15 06:25

The trustee and the IRA custodian are the same entities. But if the client inherited this account from his parents, a serious error might have been made because it sounds like the IRA is now in the client’s name and the original owner is not included in the registration of the IRA. Who handled the re titling of the IRA after client’s parent passed?



Submitted by Chris Lester on Thu, 2009-01-15 20:29

Alan,

again thank you for your insight. I am not certain who handled this initially. This client was referred to me and I saw this and want to make sure I handle it correctly.

I am in the process of calling the client to find out exactly where this came from, but let’s assume for the moment that it was not from a deceased parent, why else would an IRA be titled in this fashion orginally?

Lastly, if this is from a deceased problem and I want to help the client correct this to be titled correctly. Where should I start and what should I advise my client to do next?

Chris



Submitted by Alan Spross on Fri, 2009-01-16 03:25

Chris,
The IRA is titled correctly for an owned IRA, so the issue is whether client’s ownership is proper or not. If this account was not eligible for ownership, eg if inherited from a non spouse, then there has been a taxable distribution and the IRS would not grant any relief.

However, if this happened due to the fault of an IRA custodian or advisor of the client, the client’s recourse would be directed toward the party at fault.



Submitted by Denise Appleby on Fri, 2009-01-16 11:25

Adding to Alan’s comments, this type of titling is usual when the custodian/trustee is a Trust Company. I agree with Alan that the titling is OK, if the account is an ‘owner’ (non-inherited). If there is some concern that the titling is incorrect, it is best to determine the source of initial and all subsequent funding. If any funding came from inherited assets, the ‘nest steps’ can then be determined.



Submitted by Chris Lester on Fri, 2009-01-16 12:15

Thanks for the input Denise & Alan,

I have spoken with he client at length and determined that this was an IRA that his parents had set up for him many many years ago (whether he was a minor initially still remains uncertain), but in essence the IRA is his and was never inherited. It was actually created for him while his parents were still alive. So thank you both on helping me sort out the specifics.

The next question I have is I called a company I use to make sure that I move this correctly for him. The paperwork did not have enough room to title the account identically. I called the new possible company and I read the title of the old account (as I stated above) to the new company they said “We dont take custodial transfer accounts here.” I said “Oh?” Now for my question, If I still want to use this new company can I have the client have the account liquidated, check cut and sent to him directly, and redeposited into a new IRA (titled as an IRA) as long as it is within the 60 days? Anyother suggestions would be welcome, or is this just that simple?

Thank you



Submitted by Bruce Steiner on Fri, 2009-01-16 15:15

Would he want to have his IRA at a financial institution that didn’t take IRA transfers from other financial institutions?



Submitted by Denise Appleby on Fri, 2009-01-16 16:01

Following on the Q from randazzi…The answer may be a little different if the check was issued from an IRA. See http://www.retirementdictionary.com/rollover_or_transfer_which_applies_h…

Regarding the question from Chris, where they said “We dont take custodial transfer accounts here” , the response is likely due to a misunderstanding of what was being asked. Call them again. This time, don’d read the registration. Just ask if they will acept a trasnfer from ‘name of the firm’, and what are the operational/document requirements.



Submitted by Jose Morales on Fri, 2009-01-16 17:07

[quote=”[email protected]“]
2) Yes, that would be considered as a transfer and not a rollover [b]since the person cannot cash that check.[/b][/quote]

You would think so, wouldn’t you? I don’t have quite as much ease with handing a check to a client when it’s anything but a reportable distribution. Front line tellers aren’t exactly known for their retirement plan knowledge.



Submitted by Jose Morales on Fri, 2009-01-16 17:11

[quote=”[email protected]“]Thanks for the input Denise & Alan,

I have spoken with he client at length and determined that this was an IRA that his parents had set up for him many many years ago (whether he was a minor initially still remains uncertain), but in essence the IRA is his and was never inherited. It was actually created for him while his parents were still alive. So thank you both on helping me sort out the specifics.
[/quote]

Did the client have earned income during the time at which the parent’s supposedly set up and made contribution to an IRA oh his behalf? If the client was a minor at the time with no income the parents would not have been able to make contributions on his behalf.

If he was simply the beneficiary of the parent’s seperate IRA accounts which they were funding for the sole purpose of providing him with a tax deferred inheritance then he might still be in the same situation as before; needing to correct the titling of this account to reflect that it is an inherited IRA and not his own.



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