Inherited IRA Question
I am getting different answers from everyone I talk to, so I’m trying to see if I can settle on the correct one! Here is the situation:
84 year old client, husband (within 10 years of age) died this year. There are 3 IRA accounts:
Traditional IRA in clients name
Traditional IRA in deceased spouses name listing client as beneficiary
Traditional IRA in deceased spouses name with NO beneficiary listed
All assets were left to the surviving spouse.
The custodian (Nicolas funds) is telling the client that since no beneficiary designation was listed, it defaults to 5 year pay out and she doesn’t benefit from being a spousal inheritor. Plus, my understanding is these won’t count towards RMD’s, so it will cause a real tax issue.
Vanguard won’t allow us to rollover the IRA without Nicholas Funds listing her as the owner, which they won’t do. SSG (Pershing) will allow the transfer, but I want to be very sure that Nicholas Funds is incorrect before doing this.
Any thoughts?
Permalink Submitted by Bruce Steiner on Thu, 2013-11-14 17:12
If the entire estate passes to the spouse, the spouse should be able to roll the IRA over into her own IRA. See my article on this subject in the October 1997 issue of Estate Planning: http://www.kkwc.com/docs/AR20050125164755.pdf. The custodian may require a letter, a legal opinion, or a private letter ruling, or perhaps you can get to someone higher up whom you can persuade.
Permalink Submitted by Alan - IRA critic on Thu, 2013-11-14 20:36
The 5 year rule does not apply when the IRA owner passes after the required beginning date. If husband was within 10 years of the age of the 84 year old client, he passed after his RBD. The Nicolas IRA agreement needs to be checked to determine who the default beneficiary is, since in some cases it is the surviving spouse, but more likely it is the estate of the decedent. For the second listed IRA account where she is the designated beneficiary, she should complete husband’s 2013 RMD and roll it over to her name ASAP and name her successor beneficiary. For the final account without a designated beneficiary, don’t let Nicolas pressure her into a lump sum distribution until she explores the possibility of rolling this over to her own IRA. See bsteiner’s link for documentation that can be used if the situation warrants.
Permalink Submitted by Alan Moore on Sun, 2013-11-17 16:41
Thank you both very much for the confirmation. Now to go fight it out with Nicholas funds 🙂