Non-Spouse Inherited IRA
We have a client who is one of two beneficiaries on her recently deceased uncle’s IRA. We have established an Inherited IRA for the money to be sent to.
What are the rules on distributing the monies from the uncle’s IRA to our clients? Can a check be made payable to her without incurring tax penalties? Do we have to do a direct plan to plan rollover by establishing an inherited IRA for the client where the funds are currently held and then transferring the funds into the Inherited IRA we have set up?
Permalink Submitted by Jose Morales on Thu, 2010-09-16 21:03
Any distribution of funds from a deceased IRA owner’s account to a non-spouse beneficiary is an irrevocable distribution that would not be eligible for rollover to a beneficiary IRA or their own IRA. The only way a non-spouse beneficiary can move funds from the current IRA of the deceased to an inherited IRA is by way of an IRA to IRA Transfer.
Direct Rollovers refer to moving funds from a qualifired/employer sponsored retirement plan to an IRA.
Direct Transfer is a redundant term, as all Transfers must be direct from one IRA to another.
Permalink Submitted by Dona Ayre on Mon, 2010-09-20 22:18
My client ( age 67 ) and his sister recently inherited an IRA from their Mother who was taking RMD s . Must they each establish their Inherited IRA s by Dec 31 , 2010 or Dec 2011 and since RMD was waived for 2009 , can they wait until Dec 2011 to take RMDs based on their life ? Is there any RMD for the Mother ?
Thanks ,
Dona
Permalink Submitted by Alan Spross on Mon, 2010-09-20 23:01
Assuming their mother passed in 2010, they must distribute her RMD to the extent that she had not distributed it at her death. This distribution should be done before year end. It can either be done before they create separate beneficiary accounts or after. Either way, the mother’s RMD will be taxed to the beneficiary that receives it. The beneficiaries RMD for 2011 must be taken by the end of 2011 using their own single life expectancies.
Sometimes one of the beneficiaries needs a large distribution right away. In that case, the distribution may be large enough to complete mother’s RMD without the other beneficiary taking a distribution in 2010. But the custodian must keep tabs of which beneficiary receives distributions to make sure that the percentage interests in the account are maintained.
The most simple and direct approach is for each beneficiary to take their share of mother’s RMD in 2010, then create the separate accounts after which they are on their own.
They should also name their own successor beneficiaries for their interest ASAP, without waiting for distributions.
Permalink Submitted by Dona Ayre on Tue, 2010-09-21 00:24
Thanks for the clarification !