Client with Guardian IRA question
I currently have a 20 year old client with a guardian IRA. He inherited the funds for this account when his father passed away approximately 6 years ago. The guardian is currently his mother, and the IRA was set up with a different adviser. The client reached the age of majority 2 years ago and wishes to now to have me be the broker on the account and to also remove his mothers name from it.
My question is, how did this account get created? The client was 14 years old when his father died, and claims the cash in the account was placed in there upon his death. There have been no contributions or withdrawals since the initial contribution. It is not an inherited IRA, and couldn’t have been since it was created 6 years ago. The custodian company claims that it is a traditional IRA. I’m not sure how this could have occurred. I’ve never come across something like this, and any information would be greatly appreciated. Thanks.
Permalink Submitted by Alan Spross on Wed, 2010-11-03 02:51
Perhaps the guardian was able to make an IRA contribution in the past using earned income, even earned income from doing household chores, mowing lawns, etc. If so, you would expect that it would have been a Roth IRA and not a TIRA. Having earned income is the only way an IRA contribution can be made. If the client inherited cash, it may be a reason that any earnings from a job could have been used to fund a contribution while the inherited non retirement funds were used to subsidize other expenses.
The IRS has not been actively overseeing regular IRA contributions for minors, even if there is no W-2, but if the client has no idea, and you do not wish to contact the mother, perhaps the IRA custodian can provide some info, such as wether the IRA was created as a regular contribution and in what year. Guardian authority is closely monitored by the courts according to state laws, and those laws also dictate when the guardianship can be terminated. Not sure if that age is automatically the same as the age of majority for UTMA accounts.
Of course, this also might have been an inherited IRA for which the retitling was botched.
Permalink Submitted by Mike Richards on Thu, 2010-11-04 12:11
Thanks for the response. I called the custodian, and they only information they were able to give me was that it is a contributory traditional IRA and that the guardian can be removed. I tried to get more information as far as how the contributions were made, but was unable to due to not being the broker on the account yet.
If the paperwork, or retitling, was incorrectly processed, what would the best course of action be for me to do with this client? The account was created sometime between 2002 and 2004. Were non-spousal inherited IRAs even around then? I apologize for my ignorance on this topic, minors with IRAs are not something I come across often.
From my discussion with the custodian, the IRA is a contributory traditional IRA and there is nothing wrong with it. Right now, I plan to treat it as such. However, I don’t want there to be significant tax implications down the road for my client, if in fact something was incorrectly processed previously. Any help would be appreciated. Thanks a lot.