IRA adult beneficiaries
Owner of IRA dies; 4 adult beneficiaries; each want the funds directly, not an ‘inherited IRA account’. Being told by custodian that 4 IRA accounts have to be opened and then take the distribution which would be rightfully taxable but would also incur a penalty since all under 59 1/2. Is this a correct scenario. IMPORTANT
Permalink Submitted by Alan - IRA critic on Tue, 2015-03-31 18:07
Must be a “non stretch” family. The inherited accounts must be opened in this situation just to process the lump sum distributions under the appropriate SSNs. But there is no penalty since these are death benefits, and each beneficiary will get a 1099R coded 4. However, unless the IRA is small the lump sum payouts may produce an unexpected tax bill.