Estate IRA Options
Individual passed away after RBD with no listed beneficiaries. Custodian established an “Estate IRA Beneficiary Account”. What options do the beneficiaries have regarding distributing the money?
Individual passed away after RBD with no listed beneficiaries. Custodian established an “Estate IRA Beneficiary Account”. What options do the beneficiaries have regarding distributing the money?
Permalink Submitted by Alan - IRA critic on Fri, 2016-01-22 20:25
The estate executor can have the IRA assigned to the beneficiaries of the estate in the form of separate inherited IRA accounts. The RMDs for the beneficiaries will be based on the remaining life expectancy of the deceased owner. They must also complete the year of death RMD of the decedent if decedent did not so so before passing. Note that the IRA custodian will probably try to push for a lump sum distribution to the estate, but their agreement likely does not allow this. The executor will probably have to be very insistent on getting the IRA assigned to the beneficiaries.
Permalink Submitted by Peter Thomann on Fri, 2016-01-22 23:03
Thank you Alan. Custodian will not establish separate IRA accounts. This has been a lengthy battle and the executor has had enough. If the IRA gets distributed to the estate the result is taxes are paid at the estate level? The custodian claims they can just distribute the IRA to the beneficiaries which result in taxes at the individual level. Does that sound accurate? Thanks.
Permalink Submitted by Alan - IRA critic on Fri, 2016-01-22 23:32
I guess they could do that if the executor submits required papers and releases and the custodian makes the distributions under the respective SSNs. Whether loss of the stretch is worth fighting for or not depends on several variables such as the amount of the IRA, the needs of the beneficiaries, the age of the decedent at death, and if the estate needs to stay open for any other reason. If a distribution is made to the estate, it can still be passed through on a K1 to each estate beneficiary and would then be taxed at the beneficiary’s rate. But that requires the estate to file a 1041 and issue a K1 to each beneficiary. If no other estate assets, a direct distribution to each beneficiary would eliminate that work, but of course any stretch would be gone and the amount distributed to each beneficiary might increase their tax rate. Again, the best choice depends on several variables. It may also be possible to transfer the IRA to another custodian that will be more cooperative, but that would also take some work. Here is an article on this situation: https://www.ataxplan.com/bulletin-board/notice-to-executors-and-trustees/
Permalink Submitted by Peter Thomann on Sat, 2016-01-23 01:14
Thanks again Alan, very helpful. Executor has no interest in trying to transfer to another custodian.