Split beneficiary IRA
My wife has a beneficiary IRA she inherited from her parents a few years ago. Currently, the IRA is held at Edward Jones, and is comprised of various stocks, funds, bonds. We have a local investment in a company via promissory note we would like to pursue, which would require putting cash in a separate self directed IRA.
We do not wish to completely liquidate the holdings in the Edward Jones account to cash, nor do we wish to terminate that account. We want to liquidate about half to cash, then transfer that cash to the new beneficiary (self directed) IRA. So, we would end up with two separate IRA’s.
My question is, will splitting the IRA into two IRA’s cause a problem with the IRS? We are currently taking RMD’s on the EJ account, and wish to do so with the new self directed account trustee. I have been told that there would be no problem as long as the new self directed IRA is termed exactly as the existing one, i.e.:
FBO John Smith (or deceased parent name)
C/O Jane Smith Jones (or my wife’s name)
We DO NOT wish to create a taxable event other than the RMD for this year.
Permalink Submitted by Alan - IRA critic on Thu, 2017-07-20 21:32
She can do this by first doing a non reportable transfer of the cash raised in the EJ IRA to the self directed IRA. The total RMD can be taken in any combination from the two inherited IRA accounts since they were obviously inherited from the same decedent. The IRS does allow some variances in titling inherited IRAs as long as both the name of the decedent and the name of the beneficiary is shown. The order of the names is immaterial. As for the self directed account, the notes must be purchased in that IRA and it is not clear exactly what you meant by “we have a local investment in a company etc”.
Permalink Submitted by Denis Pantle on Thu, 2017-07-20 21:41
Thanks. The titling thing is an Edward Jones thing. EJ told me that they would reject the transfer request if the Self Directed account was not the same title. I just wanted to be sure I wasn’t creating a problem with the IRS by splitting into 2 accounts in the first place.As far as the RMD’s going forward, I can have each trustee determine that, but you make a point. I will want to monitor that total combuned amount myself as well.
Permalink Submitted by Alan - IRA critic on Thu, 2017-07-20 22:02
With respect to the title of the inherited IRA, most custodians use a processing platform that supports a certain titling format for inherited IRAs. While the IRS is OK with either order, the real question is whether the SD IRA custodian will accept the identical title as EJ has on the account now. If not, I guess you will have to try to negotiate a solution between the two custodians. As indicated, do not let either of them infer that the IRS requires them to use only the format they prefer. You should be able to get this worked out, as I never hear of someone who cannot transfer an inherited IRA due to titling problems such as this.
Permalink Submitted by Denis Pantle on Thu, 2017-07-20 22:43
That makes sense. Thank You.