Beneficiary status on inherited IRA

Submitted by Susan Tackett on Thu, 2018-09-27 18:07

I have a client who has inherited a second generation IRA. Grandfather passed assets on to daughter, daughter died at 51 and passed assets on to niece. Current custodian, a large wirehouse, is telling client that she can not establish a beneficiary for this inherited account but that she can take the 5 year payout. My question is this:
If she does or does not take the 5 year payout, how can she NOT establish a beneficiary? Is it incompetence on the part of the current custodian, or is that a fact? It does not seem right. Thanks for your help. Susan



Submitted by Bruce Steiner on Thu, 2018-09-27 22:34

  • Some financial institutions, including at least one major wirehouse, won’t permit a beneficiary of an inherited IRA to set up an inherited IRA to continue the stretch.  IRA beneficiaries should check to see that the financial institution where they have their inherited IRA will permit this, and if not, move the inherited IRA to one that will.
  • Bruce Steiner

Submitted by Alan - IRA critic on Thu, 2018-09-27 23:18

  • It is possible that the the custodian rep erred and treated the deceased beneficiary as the owner that passed prior to the RBD, and in that case the 5 year rule would have applied. In the actual situation, the successor beneficiary under the tax code would have to continue the RMD schedule of the deceased beneficiary.
  • As Bruce indicated, the custodian may be applying their more restrictive requirements for successor beneficiaries. That requirement should be in the IRA agreement, but does not have to be. The custodian could have adopted an even more restrictive provision of a lump sum distribution. 
  • Check with the custodian for a complete explanation of this decision, and if it is correct, do a direct transfer to another custodian, if you can find one to accept the account using the tax code RMD rules.

Add new comment

Log in or register to post comments