Inherited IRA titled incorrectly
Hello,
I have a client who, at the age of 13, lost her father. She was beneficiary on everything, as her parents split a few years prior and she was an only child. Included in her inheritance was an IRA. It was 9 years ago that he passed.
When she initially received this inheritance, the IRA was transferred to her name with her mother as custodian on the account. However, it was set up as an IRA instead of a non-spousal beneficiary IRA. Because of this, she has never taken out an RMD. My question is, what do I do to fix this?
One of the bankers at the bank I work at already rolled over the account into a brokerage account held at my firm. So, now the IRA is no longer held at the firm that initially set it up and the mother is no longer custodian on the account.
I’m playing catch on the whole situation as I didn’t sit with the client and am just going off of what the banker is telling me. Any thoughts on the matter is truly appreciated. I don’t want this client to get hammered with a huge penalty for not taking her RMDs.
Thanks a lot!
Permalink Submitted by Bruce Steiner on Wed, 2012-08-08 21:14
See if PLR 201139011 helps: http://www.irs.gov/pub/irs-wd/1139011.pdf .
Permalink Submitted by Denise Appleby on Fri, 2012-08-10 20:15
[quote=”[email protected]“]Hello,
I have a client who, at the age of 13, lost her father. She was beneficiary on everything, as her parents split a few years prior and she was an only child. Included in her inheritance was an IRA. It was 9 years ago that he passed.
When she initially received this inheritance, the IRA was transferred to her name with her mother as custodian on the account. However, it was set up as an IRA instead of a non-spousal beneficiary IRA. Because of this, she has never taken out an RMD. My question is, what do I do to fix this?
One of the bankers at the bank I work at already rolled over the account into a brokerage account held at my firm. So, now the IRA is no longer held at the firm that initially set it up and the mother is no longer custodian on the account.
I’m playing catch on the whole situation as I didn’t sit with the client and am just going off of what the banker is telling me. Any thoughts on the matter is truly appreciated. I don’t want this client to get hammered with a huge penalty for not taking her RMDs.
Thanks a lot![/quote]
When you said “rolled over” do you mean ‘transfer’? That can be a determining factor.
Also, I would not rely on what the banker says. Get confirmation that the account was in fact not properly set up as an inherited IRA. If that is indeed so, it could be an easy fix if the assets were not commingled with non-inherited assets.
Permalink Submitted by Ed Burgio on Mon, 2012-08-13 21:06
Hi Denise,
I did mean transfer instead of rollover. I tend to use those terms interchangeably even though I know I should’t. There also was no additional contributions. What is the easy fix for this? Thank you!
Permalink Submitted by Alan Spross on Mon, 2012-08-13 23:23
There has been no distributions or commingling with another IRA account, therefore you should assist in collecting documentation to show to the current custodian that this is an inherited IRA and should be re titled as such. The IRS allows this to happen, but the custodian may resist.
She also needs to make up the missing RMDs for 2004 through 2011 with the exception of 2009 when RMDs were waived. She might as well also calculate and take out the 2012 RMD. The 8 RMDs will be taxable this year, and a Form 5329 should be filed with a full explanation asking the IRS to waive the excess accumlation penalties through 2011. Evidence of distribution of the retroactive RMDs should be included. Since the penalty is so punitive and she was so young, the IRS will likely waive the penalties.
There is also the matter of avoiding the 5 year rule when life expectancy RMDs are this late. PLR 2008 11028 allows this, albeit with a shorter period of missing RMDs and the penalty was required. I think it best to wait until the IRS waives the penalties and if they do, just keep taking life expectancy RMDs from here on.