Inherited IRA
Inherited IRA
I am working with a recent widow who is the named beneficiary of the husband’s IRA (not a Roth). Unfortuntely she will need to make annual withdrawals to live off the money (she is 38). RMD’s are not the issue right now (he was 40). The custodian would not her title the account as an inherited IRA only surviving spouse or the other options available. The reason we want an inherited IRA is that I believe in order to avoid the 10% exemption on withdrawals going forward for years is to title it as an inherited IRA- if she puts it into surving spouse title she would be subject to the prematur penalty
A 72t wont work due to her age and amounts need to live on.
Separately does the 10% penalty if applicable depend on the clients tax liabilty or if no tax liablity does she still have to pay it anyway
thanks for your assitance[code][/code]
Permalink Submitted by Alan Spross on Wed, 2012-03-14 23:41
If she had no tax liability, she would still owe the 10% penalty, so that is not the solution. I wonder if this institution has been sued yet for this stance, since once a surviving spouse assumes ownership of the IRA due to pressure from this custodian, serious financial damage has been done. I fully agree that a 72t plan at her age is a recipe for disaster and should be avoided.
But the contact people for this IRA custodian probably do not know what they are talking about, so contact should be requested higher up the ladder. The IRA agreement should be checked before contacting them to see what it says, and it would be surprising if it supported their position.
If it gets down to plan B, she should seek out another custodian who will set up an inherited IRA for her and determine if they are able to accept a transfer from the other institution when their inherited IRA is titled differently from the original custodian who refuses to re title their account. It is probably possible to even take a distribution and have the new firm set up the account because a sole spousal beneficiary is not subject to the rollover restriction of inherited IRAs since for rollover purposes the IRA is not considered inherited under the tax code. But I would start with the earlier solutions and avoid this last one as it is subject to further IRA custodian requirements and interpretation.