Minors inheriting IRAs

Submitted by D I on Thu, 2018-09-20 14:36

I am inheriting 403B retirement funds (which are with Fidelity and TIAA-CREF currently) from my husband. I wanted to disclaim them in favor of my children who are he contingent beneficiaries. One of the them is a minor, so I applied and got a formal guardianship from the state of MD. However, the guardianship rights are very restricted. The order said that the money must be place in a restricted account at a financial institution that is federally insured or is regulated by the Commissioner of Financial Regulation (I am not even sure what regulatory body that is – may be local MD regulator). In addition, withdrawals of principal and interest can be made by Court order only and the accounts can not be larger than $200,000. The two firms where the accounts are currently could not offer me any accounts that could meet those restrictions – brokerage accounts are by defaults uninsured, the amounts are greater than 200K, and even if they manage to rename the account to an inherited account where it is now, I will have to get special permission to roll it over elsewhere and the make the min required distributions. There seems to be little option left but distributing the money and putting them in a restricted savings account, which defeats the purpose of disclaiming. I am afraid that if my kids are still minor when I pass away, their guardian will have a similar issue. Has anyone dealt successfully with establishing and managing a pension account for a minor (with distributions over a lifetime)?



Submitted by Alan - IRA critic on Thu, 2018-09-20 15:26

  • In most states, the parent could simply establish an UTMA account to receive the RMDs and other distributions needed for the welfare of the minor. Therefore, it appears that you will need legal assistance from a MD attorney to cut through these regulations. Of course, the value of these accounts will be a factor. 
  • What was your husband’s age at his death?  If he passed prior to his RBD, if you do not disclaim you will not need to begin RMDs until he would have been 70.5.  And if you are 59.5 by that time you would roll this over to your own IRA at that time. You would need to compare your own RMD situation under these rules to determine if you should disclaim or not. Also, keep the new kiddie tax in mind since a minor who receives inherited IRA distributions will pay a higher tax rate. So perhaps you keep the accounts (inherited or rolled over) and just gift the children the amounts you wish.  You can gift up to 15k per year to each without filing any gift return.  
  • You probably know the disclaimer deadline is 9 months from the date of death.

Submitted by D I on Thu, 2018-09-20 20:01

for your response. Both me and my husband when he died are under 50. It is my understanding that if I possess the accounts, I can immediately convert them to my own IRAs and I don’t have to start distributions until I am 70.5. So from that point of view it is more convenient not to disclaim. However, I have a relatively short life expectancy and wanted to transfer the pension money to my children now and set up the accounts for them, so they don’t have to deal with it by themselves after my death. The problem is not so much the accounts in which to receive the RMDs but the principle pension accounts – which are typically brokerage accounts in an investment firm and therefore not federally insured. The account custodians advised me to get a formal guardianship if I am planning to disclaim (I think Maryland technically requires guardianship for any inheritance over $5000) but now seem puzzled how to satisfy the restrictive conditions of the guardianship order. Becasue of pecular tax circumstances (I am non-resident while my kids are citizens), my kids file their own tax returns without being considered my dependents, so I think the kiddie tax will not apply – the distributions will be covered by their standard deduction.

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