Inherited IRA

Submitted by Anthony Saccaro on Thu, 2012-06-14 14:49

My Father passed away in Feb, 2012 after his RBD and my sister and I inherited a couple of IRAs from him. My sister’s kids were listed as per stirpes on the bene form and she would like to disclaim her IRA to them. After talking to her CPA however, he told her that she doesn’t need to do this because she can simply keep the IRA until she retires without taking any RMD whatsoever. When she told me this, I was certain that he misunderstood her situation but when she went back to him to clarify, he continued to be adamant about the fact that there are no RMD requirements whatsoever for my sister until she retires. Is there something in this situation that I am missing or is she required to take RMDs?

Anthony



Submitted by tomd37 on Thu, 2012-06-14 16:46

My understanding is that because you and your sister are inheriting a non-spousal IRA, you both will be required to start taking RMDs not later than December 31, 2013 based on your attained ages at that time and the value of each portion of the inherited IRA as of December 31, 2012. I think you can take distributions this year once the IRA is retitled. Distribution would be required from both types of IRAs, traditional and Roth, but only the distribution income from the traditional would be taxable.

I am sure you will get better responses from other respondents.

Tom D.



Submitted by Anthony Saccaro on Fri, 2012-06-15 15:08

Tom,

Your answer is exactly what I know to be true but the fact is I’m confused by a CPA who is adamant about my Sister not being required to take an RMD until she retires. Is there anyone on this board who knows with complete certainty?

Thanks,

Anthony



Submitted by tomd37 on Fri, 2012-06-15 15:23

I suspect you will receive an reply shortly from a expert gentleman Alan S. He reads this forum frequently. IRS Publication 590, starting on page 18 of the 2010 version, has all the details about IRAs, including inherited IRAs.

Tom D.



Submitted by Jose Morales on Fri, 2012-06-15 16:10

Hello Anthony,

You are correct that distributions from the inherited IRAs must begin by December 31st of 2013. You must also be sure that the 2012 RMD that your father would have had to have taken is withdrawn by the end of this year. If you sister is going to disclaim so the inherited IRA goes to her children they need to set up separate inherited IRAs as soon as possible. Are the children adults or minors? If they are under 18 their may be issues with finding an IRA custodian comfortable with opening the inherited IRAs for them. Most of the big discount brokers would propbably do this with no problems but smaller banks and credit unions may not have the staff to provide the support inherited IRAs of any type, let alone with minors as the beneficiaries. She should start doing her homework now and finding a place where the funds can be transferred to as soon as she disclaims.



Submitted by Anthony Saccaro on Fri, 2012-06-15 20:13

Thanks for the replies. Finding a custodian for my Sister’s minor children won’t be a problem if she chooses to disclaim them. However, her CPA is informing her that there is no need to disclaim them because she can simply hold the IRA until she retires without being required to take any distributions whatsoever until she reaches retirement age even though she is 38 yrs. It is my understanding however that anytime a non-spouse beneficiary inherits an IRA, they will be required to begin taking some type of RMD even though the options will vary depending on the age of death of the IRA owner. What I’m trying to verify with complete certainty is whether there is an option available for my Sister to simply leave the inherited IRA in an account without taking any distributions until she is of retirement age. I do not believe this option exists but need verification.

Thanks,

Anthony



Submitted by Jose Morales on Fri, 2012-06-15 20:34

There is no option for a non-spouse beneficiary to hold off on taking mandatory distributions from an inherited IRA until they themselves have attained the age of 70 1/2. If the IRA owner was past their Required Beginning Date, a non-spouse beneficiary would have to begin taking distributions based on the longer Single Life Expectancy of either the IRA owner or the beneficiary, reduction method.



Submitted by Alan Spross on Fri, 2012-06-15 21:04

I think the CPA might be thinking of the “still working exception” with respect to RMDs. However, that exception only applies to participants in qualified plans. It does not apply to IRAs or to beneficiaries of qualified plans.



Submitted by Anthony Saccaro on Sat, 2012-06-16 14:43

Thank you! I truly appreciate all of the feedback.



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