Rollover of inherited IRA
Scenario: a nonspouse inherits an IRA or Retirement Plan. He wants to maximize the stretch (so no 5 year option). It is in the year after the year of death of the original owner. If the beneficiary wants to roll the IRA over to another institution, must this year’s RMD be paid out prior to rollover (i.e., RMD as “ineligible for rollover”)? If this RMD is not taken prior to rollover, could this force the beneficiary into the 5 year distribution option?
Permalink Submitted by Alan Spross on Wed, 2011-03-16 21:24
If a qualified plan is being transferred to an inherited IRA, the RMD must be distributed before the transfer because these are reported as distributions and rollover even when done directly as required.
But not an inherited IRA to inherited IRA direct transfer. These are not considered to be distributions and are not reportable. Moreover, RMDs can be aggregated with any other inherited IRAs from the same original decedent, unlike the case with qualified employer plans. So the inherited IRA can be transferred directly without the RMD being distributed.
In no event would an RMD failure from a qualified plan trigger the 5 year rule unless the 12/31 deadline in the year after death was missed and the QRP included an mandatory 5 year rule. If the deadline is met but the RMD rolled over, the worst case is that the the RMD is considered completed and that RMD is not eligible for rollover. The RMD amount would have to be withdrawn from the inherited IRA along with allocated earnings, but it would not trigger a full distribution of the inherited IRA.