Non-Spousal Inherited IRA

Submitted by Allan Wilson on Sun, 2018-09-30 18:28

If I inherited 1/3 of a non-spousal IRA from a parent who had already started receiving RMDs…. I am younger than the deceased. 2018 RMDs for the account have been satisfied by the deceased.
The custodian restricted options for the account and a stretch is not available so I am going to take a lump sum instead of annuitizing. The IRA is currently in an annuity but I want to move to a brokerage account at a different firm.

When I take the lump sum, can I open an inherited IRA brokerage account without paying any taxes? I was hoping to allow the money to continue to grow tax deferred and pay taxes as I take out the annual RMDs based off my age. If this is possible, can/should I have the money transferred direct from the annuity to the new custodian? Can/should I have the check sent direct to me? Does it need to made out a certain way if sent to me? If sent to me what precautions must I be aware of so I can continue this tax deferred ability.

Any other advice you can provide to ensure I make the right choices?



Submitted by Alan - IRA critic on Sun, 2018-09-30 21:50

  • If you receive a distribution, it cannot be rolled over and you will be taxed on the full amount. Did you check the contract to see where it says a non spouse beneficiary must take a lump sum distribution? Some insurance companies may require that, but most do not. Resist any distribution until you are satisfied that there is no other recourse if the stetch matters to you. The higher the amount of the inherited IRA, the more costly a lump sum distribution will be, as a large balance will drive you into a higher bracket.
  • Even if you cannot get them to cooperate, you might still try to open an inherited IRA at a brokerage firm and have them submit a direct transfer request from the insurance company. If the insurance company sees that they can rid themselves of the account with little work, they might let it go through. Worth a try.

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