non spouse did move assets to her own IRA and then another
we have a beneficiary that moved the assets from the deceased IRA to her own IRA as a non spouse. I know that is not allowed but it was done. Then they did a transfer to another IRA with another company. Not sure why no none caught that. Now they have come forward saying help. They need to be rescued. is that possible? are there any options or is this client faxing a death distribution as the only option?
Permalink Submitted by Alan Spross on Wed, 2009-12-16 21:59
There is no way out since she took a distribution and rolled it over when the assets were not eligible rollover distributions. They need to order a corrective distribution from the IRA and the custodian will do an earnings calculation to determine the amount of earnings that also need to be distributed.
The inherited IRA distribution will be taxable in the year taken, and the corrective distribution taxable in the year processed. There is no penalty on the inherited distribution amount, but the earnings on the rollover distribution will be taxable and subject to penalty when distributed. The funds need to come out of the IRA prior to year end to avoid a 6% excise tax as well due to the excess contribution.
The transfer from the inherited IRA should not have been possible to an IRA with a different registration for a non spouse.