Inherited IRA
I am in the process of helping a client with an issue he has run into with an Inherited IRA. Unfortunately, we were unware that there is no 60 day rollover rule for Inherited IRAs and the client needed funds for an investment with some of his attorney partners. So funds from the Inherited IRA were sent to the client. Then the client sent the funds to a bank for deposit into the same Inherited IRA ownership. The transactiion created a distribution from the Inherited IRA that is now taxable to him. We are obviouly trying to avoid the taxes and was wondering if you had any suggestions. What I have found out after much more research is that the other firm, a bank, has set up an Inherited IRA, but my understanding is that only trustee-to-trustee transfers are avaialbe to this type of account. So I am not sure how they, the bank, were able to set up the Inherited IRA. Any help you could provide is greatly appreciated.
Permalink Submitted by Alan - IRA critic on Wed, 2014-03-26 16:34
The bank could set up the non spouse inherited IRA, but it can only be funded via a transfer, not a rollover. There are no work arounds available that allow a distribution from an inherited IRA to be rolled over, except for a spousal beneficiary. If the bank accepted a rollover contribution to the inherited IRA, this was incorrect and the rollover is void. The IRS would likely catch a return where a 1099R reporting a distribution from an inherited IRA was reported as a rollover on Form 1040.
Permalink Submitted by Ralph Bryant Jr., CFP on Thu, 2014-03-27 12:23
Is there anything we could send the IRS regarding this indicating that we were not aware that we could not roll over the funds? The clients intent was to keep the money in the Inherited IRA, but becasue of his need for the funds quickly these were the only ones we could access quickly.