Beneficiary IRA Rollovers

Submitted by Tony Pondel on Thu, 2015-10-01 19:47

I have a client who’s mother passed away in 2015. There are 8 children to inherit the account. The Mom had been taking RMD’s from her IRA but had not done so this year.

Two questions:
1) Does the RMD have to be taken BEFORE the acct is split for the heirs?
2) The current firm is reluctant to split the acct 8 ways. (Probably doesn’t want to do the work knowing the money will be leaving.) Is there any way to roll the heirs beneficiary money out other than an ACAT? I’m not aware of any options but wanted to ask. They all want to maintain the accts as a Beneficial IRA.

Thanks



Submitted by Alan - IRA critic on Thu, 2015-10-01 21:02

  1. No
  2. I don’t know why certain IRA custodian accept a beneficiary designation knowing that they will resist providing separate inherited IRAs. If they cannot be convinced to create separate accounts, they the beneficiaries who do not want a lump sum will have to collectively arrange to have the IRA transferred to a new custodian who will commit beforehand to creating the separate accounts. A related concern is whether the custodian will create separate accounts as each beneficiary provides the documentation required or if they plan on holding this up until they collect the documentation from all of them. As to your question, a direct trustee transfer can also be done by writing a check to the new IRA custodian FBO all remaining beneficiaries and mailing the check to the new custodian. They could also do this by writing a separate equal check to the custodian for each beneficiary FBO that beneficiary and mail those checks to the respective beneficiaries.
  3. This situation is illustrative of why IRA owners with more than simple beneficiary designations should not assume that the custodian will provide the beneficiaries with flexibility and/or separate inherited IRA accounts. Owners should get a written committment, and if refused should transfer that IRA out to anther custodian. An owner has more leverage than any beneficiary will have.

Submitted by Tony Pondel on Thu, 2015-10-01 21:38

Alan Thanks.  I was under the impression that you could not simply send a check to the new custodian.    I thought all transfers had to be done via ACAT’s.

Submitted by Jose Morales on Fri, 2015-10-02 00:07

Very few IRA transfers are done via ACATs, most are done by check.  Do not confuse the term “account transfer” used generally in the financial industry with “Transfer” as used when speaking about moving IRA funds from one IRA Custodian to another.  To respond to your first post, when the current Custodian expresses that they do not wish to establish inherited IRAs for each beneficiary is this because they are trying to force a lump sum payment or is this because they are capable of accounting for each beneficiary’s payment election without the need for separate account when each beneficiary will be taking their whole portion out either as a distribution or transfer?  If their system allows them to account separately for each beneficiary’s distribution or transfer then you are just adding work for them that is completely needless.  Personally, I would go ahead and create the separate accounts rather than waste effort tyring to argue or educate others on the issue but if you are dealing with a large financial institution they have more power to dig their heels and not let outsiders dictate that they waste their time doing something that is not necessary.

Submitted by Ben Meyer on Fri, 2015-10-02 15:24

Tony-  It would be helpful if you would let us know the identity of the current IRA firm. 

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