Moving an Inherited IRA Through a Trust
Hello,
I am looking for information about an inherited IRA that is in the name of a trust. The trustee and sole beneficiary are the same person, and there are no limitations imposed in distributing from the IRA or transferring from the trust. It is a look-through trust, and distributions generate a 1099 under the trust EIN, but a K1 moves the tax burden to the beneficiary. The life expectancy of the beneficiary is used to calculate the RMDs.
Vanguard Investments will allow me to reregister an inherited IRA into the name of the beneficiary. The resulting 1099s would be issued for the SSN of the beneficiary. The RMDs would still be based on the life expectancy of the beneficiary.
Vanguard believes that the IRS will allow this move–doing the reregistration would not generate any tax documents, nor should it be considered a distribution. Speaking to a CPA, it sounds like the IRS could conduct an audit and determine that this actually was a distribution, in which case taxes and penalties would be due.
It would greatly simplify things to get the inherited IRA out of the trust, plus having it in the name of an individual would allow for a specified beneficiary. The question is, can this be done without risk of an audit derailing it?
Permalink Submitted by Jose Morales on Thu, 2014-07-31 15:38
You can search for written determinations that compare to this scenario here: http://apps.irs.gov/app/picklist/list/writtenDeterminations.html
Permalink Submitted by Alan - IRA critic on Thu, 2014-07-31 23:23
Vanguard would not agree to this transfer if it caused problems with the IRS.See PLR 2005 26010, 2006 52028, 2008 03002.http://www.ataxplan.com/bulletinBoard/pdfs/EPStudyXferIRA_Trust.pdf
Permalink Submitted by Bruce Steiner on Fri, 2014-08-01 02:21
Why are you asking the accountant a legal question? Alan has already given you cites to a few private letter rulings on this. However, if the trustee distributes the IRA, as is proposed, that will throw all of the IRA benefits into the beneficiary’s estate, and expose them to the beneficiary’s creditors and spouses.