Inherited IRA
Hello,
If I am a non-spouse beneficiary of a Traditional IRA, the owner of which passed away recently, by what date must the IRA be retitled in my name (is there a time limit/constraint on this)?
Is the retiling of the IRA universal in terms of how the IRA gets retitled (e.g. Joe Smith FBO John Smith, date of death inserted)? Can you please confirm how the IRA should be retitled into the non-spouse beneficiary’s name?
Also, I want to confirm that RMD’s would need to commence by 12/31 of the year subsequent to death (e.g. in the case of death in March, 2012, RMD’s would be required no later than December 31, 2013 – and if none are taken in 2012 it does not require additional RMD’s in 2013 ala an account owner postponing the first year’s RMD until after they turn 70, thereby requiring 2 distributions for the first year of RMD’s).
Any feedback regarding the above, as well as any other relevant information pertaining to this topic, would be appreciated. Thank you.
Jason
Permalink Submitted by Jose Morales on Tue, 2012-03-20 16:50
There is no IRS rules governing how a beneficiary IRA must be titled. The IRA custodian will have their own titling format and it is best to not try to dictate to them how you want the title to read.
If the IRA owner was already beyond the required beginning date for taking their RMD, the beneficiary must ensure that the RMD was taken in the year of death. If it had not been taken prior to the IRA owners death, then the beneficiary is required to take a distribution of the amount that should have been taken. Then the beneficiary must take a mandatory distribution by December 31st of each year beginning with the year following the year of death.
If the IRA owner was had not reached their RBD, a non-spouse beneficiary has the option of either taking mandatory distribution beginning in the year after the year of death or choosing the 5 year rule, which states that the account simply has to be depleted by the 5th year following the year of death.
Permalink Submitted by Alan Spross on Tue, 2012-03-20 18:07
I agree.
You should also determine whether you inherited any “basis” in this IRA from non deductible contributions the decedent might have made. Decedent’s prior tax returns should be checked to see if there was an 8606 filed. Since these forms are cumulative, all you need to do is work backward from 2011 to locate an 8606 for any distribution taken or non deductible contribution made. If there are other beneficiaries, each beneficiary inherits their pro rated amount of the remaining basis and this will make some of your beneficiary RMDs tax free.
You should also name your own successor beneficiary on the inherited IRA ASAP.
This is early enough in the year to give you time to determine if the decedent was subject to RMDs. If so, the 2012 RMD was probably not taken since it is so early in the year. If there are other beneficiaries or other IRAs, all the beneficiaries in total must satisfy the RMD shortfall, if any. That means that if another beneficiary needed the funds and took out more than their share of the RMD, you would not have to take any of the decedent’s RMD since others have satisfied it. But starting in the year following the year of death, each beneficiary must individually satisfy their own RMD.
You also asked about time limits. There is no time limit, and some beneficiaries do not even find out about the IRA for a considerable time after death. But you cannot take a distribution until you present a death certificate, provide your SSN, and have the account re titled. If this does not get done, RMDs can accumulate and then you have must ask the IRS to waive the penalty and even though the IRS probably will, you will still have to make up back RMDs and they would be taxable in the year distributed. If there are other beneficiaries as well, and the deadline to establish separate accounts is missed, then each beneficiary will have to use the age of the oldest for RMD calculation.