Inherited IRA w/RMD’s – spouse beneficiary
I have a client, age 84, that inherited her husband’s traditional IRA (age 77). He had been taking RMD’s, died Jan 11,2009. My client does not need any of the IRA, does not spend the RMD, just deposits into savings account. Contingent Bene is son, only child not yet 59. My client’s intent is pass the IRA on to son at her death. Could this be accomplished by her disclaiming and allowing son to transfer to his own IRA? Or should she continue with the inherited IRA taking RMD and “gifting” that amount to son? We are looking to keep taxable situation to a minimum for both my client and son.
Permalink Submitted by Joseph Arsenault on Wed, 2009-06-17 21:40
If you are looking to keep the taxable situation to a minimum there are probably outside factors that may affect the decision, however..
To maximize the after-tax income from the IRA, if the son was listed as the contingent beneficiary, the spouse can disclaim before the beneficiary finalization date. This may allow him to use his own life expectancy which would reduce the RMDs and allow the account to continue to grow. Obviously he would have to have the discipline to only take the RMDs. If the spouse inherits the money, she will have to take much larger RMDs and the up front taxation will increase. As far as gifting, it is hard to answer that without knowing any other details. I would consider things like the size of her gross estate, accumulated lifetime gifts, desire to donate to charities, etc.. For example, it can often be more tax efficient to gift IRAs to charities and pass outside assets to beneficiaries.
Without any other details I would lean towards disclaiming the assets to the son and allowing him to stretch the IRA.
Maybe Alan or Bruce can take it from here.
Hope that helps some.
-J
Permalink Submitted by Bruce Steiner on Thu, 2009-06-18 13:43
Which way is better depends on all of the facts and circumstances. She should consult with counsel.
Permalink Submitted by Clara Lehman on Fri, 2009-06-19 00:12
Thanks for your responses. Next question… after reading through many posts and responses, it appears the best choice (since already past the 60 days) for her to assume ownership of the inherited ira. how should it be titled correctly? what life expectancy, hers or as beneficiary?
Permalink Submitted by mk foss on Fri, 2009-06-19 00:58
She should roll the IRA over into her own name. No specially titling is required. She should name her son as primary beneficiary – that allows him to stretch payments out over his life expectancy when she passes away. It’s always best to have a contingent beneficiary named as well. This protects against the son predeceasing his mother and also allows for planning at her death. The contingent beneficiary might be grandchildren or a trust – that decision should be reached in connection with her overall estate plan.