inherited IRA

Submitted by Jon Heller on Wed, 2017-06-28 16:17

I have a client who passed and named his two daughters as beneficiaries under a trust for each of them. The trust is an irrevocable trust with a tax ID number. Since naming under an irrevocable trust does this eliminate the ability to stretch RMD’s.



Submitted by Alan - IRA critic on Wed, 2017-06-28 16:32

If the trusts are qualified for look through treatment, the oldest beneficiary of the trust will determine the RMD. Does client have one IRA with two trusts as beneficiary or is there an IRA account for each trust?

Submitted by Jon Heller on Thu, 2017-06-29 18:08

The deceased client had one IRA with two beneficiaries listing individual irrevocable trusts for each. Also since the inherited IRA’s are titled under the irrevocable trust for each with an tax ID number will they need to file separate tax return from their personal returns.

Submitted by Alan - IRA critic on Thu, 2017-06-29 19:13

  • Yes, each trust will have to file a 1041 to report trust income including RMDs. Income retained in the trusts will be taxable at the higher trust rates, but if RMD or other income is passed through to the trust beneficiary it will be taxed at their personal rate on Form 1040.
  • The separate account rules do not apply to trust beneficiaries, so if each trust is qualified for look through treatment then the RMD divisor is determined using the age of the oldest trust beneficiary of either trust. 
  • If any of the trusts do not meet qualification requirements, even if due to not providing trust information to the IRA custodian by the deadline, then neither trust is treated as qualified and RMDs for both fall under the 5 year rule if client passed prior to RBD, or client’s remaining life expectancy if client passed on or after the RBD. Because of having only a single IRA for both trusts, the actions of one trustee could damage the RMD calculation for the other.

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