Stretch IRA’s – Custodial Agreement Question
My question revolves around custodial agreements enabling a non-spouse beneficiary to stretch out IRA payments over his/her life expectancy.
One custodian, T.D. Ameritrade, has a specific “IRA/QRP Beneficiary Account Application” wherein one of the Non-Spousal Beneficiary elections is life expectancy payments, where it states that, “The non-spouse beneficiary can take distributions over life expectancy using the non-recalculation method. These distributions must begin by December 31 of the year after the IRA owner’s death.”
Another custodian, Pershing, does not contain information on beneficiary IRA distribution rules. I was informed by them that, “The Inherited IRA’s can be stretched out over the life expectancy of the Beneficiary account holder. Publication 590 states that the non-spouse beneficiary has three options: 5 year rule; one-time distribution (within a year of death) and life expectancy of the beneficiary.”
I just want to confirm that Pershing is correct and that a non-spousal beneficiary could stretch an IRA over his/her lifetime even though the Pershing Agreement is silent regarding beneficiary IRA distribution rules (as compared with T.D. Ameritrade).
Any feedback would be greatly appreciated. Thank you!
Jason
Permalink Submitted by Peter Lingane on Fri, 2011-12-30 16:35
You are asking a legal question: Are all IRS approved options available unless limited by the custodial agreement? For the answer, you should seek competent legal advice. Or move the account to a custodian whose agreement provides the detail you want with respect to the distribution options.
The IRS allows a nonspouse beneficiary to take distributions based on his or her life expectancy only if the original participant dies before the required beginning date or if the beneficiary is younger than the original participant. There are additional considerations if there are multiple beneficiaries. See Pub. 590, p. 35 for details.
Permalink Submitted by mk foss on Fri, 2011-12-30 19:19
Distribution over life expectancy is the default method for a beneficiary per IRS regulations for a decedent who passes away before the required beginning date. The 5-year rule is an election that the beneficiary can make. When someone passses away after the required beginning date, the Internal Revenue Code says that distributions are to be paid “at least as rapidly” as during the account owner’s life time. The regulations define “at least as rapidly” to be life expectancy but allow the life expectancy of the owner to be used if the beneficiary is older than the deceased owner.
Given that, the custodians can set their own rules but cannot allow benefits to stretch out longer than the beneficiary’s life expectancy. So it seems to me that if Pershing was more restrictive than the IRS regulations, it would be spelled out in the documents. The referral to IRS Pub 590 also indicates that they’re following the IRS rules instead of using something more restrictive.