Inherited IRA

Submitted by Charles Davis on Mon, 2017-04-10 17:24

My Daughter recently died and her primary beneficiary was her daughter, who predeceased her since she died last year and her contingent beneficiary is her sister. I understand her sister now becomes her primary beneficiary. I further understand it is important to title the Inherited IRA as “(daughter’s name) deceased for the benefit of (sister)” I have been told by the estate attorney that the sister must take all the RMD by the 5th year of death. However, I have heard that the sister, if the Inherited IRA is titled properly can take RMD’s over her lifetime. However, I need to have an IRS reference to this since I do not want to run the risk of the sister being responsible for a penalty in not taking the proper RMD. Can anyone give me an IRS reference by Publication and page number I can keep on file?



Submitted by Charles Davis on Mon, 2017-04-10 17:29

I forgot to mention on the posting I just made that the daughter was 55 when she died and had not started taking RMD’s. The sister inheriting the IRA is 54.



Submitted by Alan - IRA critic on Mon, 2017-04-10 21:54

  • Sorry to hear of your loss.  It is very surprising that the estate attorney seems to be confused between contingent beneficiaries and successor beneficiaries. Your daughter named a contingent beneficiary on the IRA agreement and that prevented her estate from inheriting the IRA. If her estate had inherited the IRA the 5 year rule would apply. But since the contingent beneficiary is treated in all respects as a designated beneficiary, you are correct that her sister can take RMDs using her single life expectancy with her first RMD being due no later than 12/31 of the year following the year of your daughter’s death.
  • I am not able to locate a direct statement in the IRS RMD Regs that the contingent beneficiary is treated as the designated beneficiary. However, various portions of this IRS RMD Regulation make it clear that the contingent beneficiary becomes the designated beneficiary if the the designated beneficiary pre deceases the IRA owner and has been named on the IRA agreement.    https://www.law.cornell.edu/cfr/text/26/1.401(a)(9)-4 


Submitted by Bruce Steiner on Thu, 2017-04-13 02:58

Perhaps the IRA owner’s sister may wish to consult with different counsel.



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