Inherited IRA RMD

Submitted by Talbot-Yashar Ellen on Mon, 2018-03-26 20:45

My husband died in August 2010 and I was the sole beneficiary of his IRA. His birthday is Dec. 1946; Mine is May, 1957 (so I am more than 10 years younger than him). Shortly after his death, I elected to roll over half of his IRA into my own, and keep the other half so that I could access funds without the 10% penalty, in case I needed them. I had intended to roll over the remainder when around the time I reached 59 1/2; I did not do so (not intentionally, just got busy), and now I found out I missed the first RMD. Please confirm/clarify–
1)I should have taken the first RMD last year by 12/31 (I miscalculated the age he would have turned 70 1/2–last year), or do I have until April 1 (and have not missed an RMD, and thus do not need to request a waiver of the fee). And do I have to take it at all…there are a couple of statements in Publication 590 B which seem to indicate that if I miss the RMD, I can treat the account as my own.
2)Do I also need to take the 2018 RMD as soon as possible (so that it looks like I am headed in the right direction when I am requesting the waiver?
3)After I take these RMD’s, can I roll over the remainder into my own IRA or by taking the RMD for last year (and this year), even though late, does that trigger the process, and I have to continue taking RMD’s from the Inherited IRA.
4)And if I do have to take the RMD’s any suggestions of what to write in the waiver request?

I have not retired yet, so receiving the money now hurts me from a tax perspective…

Thank-you,



Submitted by Alan - IRA critic on Mon, 2018-03-26 23:53

  1. Yes, you discovered the default rule for sole spousal beneficiaries in Pub 590 B. By not taking the beneficiary RMD by the end of 2017 you are deemed to have elected to assume ownership of the inherited IRA. Therefore, your RMD for 2017 is erased and you have no RMD under ownership status due to your age. No need to request a waiver of penalty on Form 5329.
  2. You have no RMD for several more years. You can now take as little or as much as you wish from the IRA with no penalty and no RMD.
  3. However, you should now notify the inherited IRA custodian that you are electing to assume ownership so that the IRA is actually retitled with you as owner. Then you can do a direct trustee transfer into your owned IRA if you wish to reduce the number of accounts. Best not to do a 60 day rollover, since you are only allowed one over a 12 month period, so save that for emegencies.
  4. Not applicable. 
  5. If you inherited any basis in the IRA (Form 8606), the remaining basis now becomes your own basis and you should file Form 8606 on your own IRA. If you have basis, part of each distribution will be non taxable as calculated on Form 8606.

Submitted by Talbot-Yashar Ellen on Tue, 2018-03-27 15:05

Thank-you very much for your response. Just to clarify and make sure I am doing the right thing, the “other half” of the inherited amount is in an account titled, “Inherited IRA” and is no longer titled in my husband’s name. I just want to make absolutely sure I do not need to take RMDs. And yes, I would consolidate into my own traditional IRA.I am not sure I understand the 60 day rollover–how does that apply to my situation since my husband passed away in 2010?

Submitted by Alan - IRA critic on Tue, 2018-03-27 15:33

You do not need to take RMDs from the inherited portion. A taxpayer is now allowed only one 60 day indirect rollover over a 12 month period. After using up the one rollover, any distribution taken is taxable and cannot be rolled over, so this can be very costly if you took a full distribution intending to move an account to another custodian. Your inherited IRA is considered your own for purposes of the one rollover limit. But since you can do an unlimited number of direct trustee transfers, you should save your one permitted rollover for an emergency situation and move funds between account using a direct transfer whenever possible. Finally, the 12 month period runs without regard to a calendar year. For example, if you did an indirect rollover at the end of April, 2017 you cannot do another such rollover until May, 2018. Rollovers you did before March, 2017 no longer count since they are now over the 12 months period including your 2010 rollover. Finally, ALL your IRAs count as if combined for this limit, the one limit is no longer PER account. 

Submitted by Talbot-Yashar Ellen on Fri, 2018-03-30 18:13

Thank-you for your follow up response. This has prompted a few additional questions.1) I am not exactly sure what the term, “indirect rollover” means. I currently have two main custodians of various IRA’s due to different employers, etc. A very small amount of my the Inherited IRA (from my husband) as well as other more significant accounts in my name remain(s) with Schwab (a 401 K from prior employer and another IRA, which as of several weeks ago was a Simple IRA).Prior to this discussion, I had been speaking with Schwab’s estate department regarding the Inherited IRA, and in the same conversation asked them to convert the Simple IRA (held more than two years, so no problem there) to a Traditional IRA so that I can now make contributions to it. Will this transaction count as an “indirect rollover”, preventing me from consolidating my Inherited IRA holdings to my IRA’s this year?2) Again, when I had originally consulted with Schwab prior to this discussion, they had instructed me to take the RMD’s on the small Inherited IRA noted above; since it was a minimal distribution, this did not concern me so I asked them to go ahead and do it. Should I report this as a missed RMD on this year’s tax return, even though I am going to treat the other one as mine (more sigificant $, held with other custodian and the source of prior discussion and responses above). Or should I just treat this as a normal distribution on my tax return next year. Can I now move this money into my Traditional IRA noted above this year, or is this also considered an “indirect rollover”?Thank-you

Submitted by Alan - IRA critic on Fri, 2018-03-30 23:55

  1. Q 1- If Schwab has both accounts they will just transfer the funds to the TIRA. There will be no check send to you which would result in an indirect rollover (also called a 60 day rollover) and therefore would not count as your one permitted such rollover. It also would not be reported on a 1099R form to you and the IRS. Just be sure that you do not request a distribution, which would result in a check being sent to you from the SIMPLE IRA.
  2.  Since you do not have an RMD due, the distribution you took is not an RMD and is eligible for rollover within 60 days of receipt, but if you are still within 60 days rolling it back would use up your own permitted indirect rollover. That would not prevent you from electing to assume ownership of the rest of the inherited IRA and then doing a direct transfer into your own IRA since that would also not count as a rollover. The only transaction that would count as a rollover would be rolling the distribution you received in cash into your IRA. 

 

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