inheriting an inherited IRA: naming it correctly

Submitted by peter mcloone on Wed, 2018-11-14 23:15

Articles on this site indicate IRS rules are complicated for naming an IRA correctly in this situation. Suppose John is the original owner of the IRA and Mary inherits from him. Then Mary dies and Larry inherits from Mary. Recommendations on this site say the original owner must always be reflected in the name. Consequently the IRA is “Larry beneficiary of John” or even better “Larry successor beneficiary of John”. However a rather large mutual fund company that is trustee for the “Mary beneficiary of John” IRA insists it’s correct for the new inherited IRA to be “Larry beneficiary of Mary”. In case it makes any difference, Mary was John’s brother while Larry is Mary’s husband.

1) do I have the title correct and the mutual fund company is wrong?
2) what is the exact chapter and verse on the IRS rules and regulations that apply? P590A, B don’t appear to help.



Submitted by Alan - IRA critic on Wed, 2018-11-14 23:42

  • The mutual fund company is correct, as the IRS prefers that the two names listed are the 2 most recent interested parties in the IRA. The 1099R Inst for inherited IRAs indicate that the prior beneficiary should be treated as the decedent (Mary as John). Therefore, Larry as beneficiary of Mary” would be the preferred title. If a particular custodian wants to include the entire string going back to John, that is OK too but custodians have a limit on how long a title can be supported in their processing platform. 
  • If an actual error is made, it can generally be corrected without causing a problem or a distribution of the account. 
  • In this case, all beneficiaries are treated as non spouse beneficiaries. Mary is a non spouse beneficiary and Larry is a successor beneficiary, and Larry (or all beneficiaries after Larry) must continue Mary’s RMD schedule, same as if Mary lived on.

Submitted by peter mcloone on Thu, 2018-11-15 13:34

Thanks for your opinion. But is there any specific written down source for what “the IRS prefers”? The opinion expressed by Beverly Devaney on this site in an article entitled “Inheriting an Inherited IRA” differs. I’m almost certain the DeVaney opinion is consistent with Ed Slott in at least one of his books. But no one seems able to point to some specific source that drives their opinion. I imagine all are likely “correct.” But it gives the ordinary guy, who wants to avoid making a dumb mistake, pause.  Seems like one ends up rolling the dice anyway.  But I really do appreciate your response as I see you take the time to respond to many inquiries in this discussion group. Please keep it up.

Submitted by Alan - IRA critic on Thu, 2018-11-15 15:54

    • “In the case of successor beneficiaries, apply the preceding rules by treating the prior beneficiary as the decedent and the successor beneficiary as the beneficiary. Using the example above (Brian Willow as beneficiary of Joan Maple), when that account passes to Brian’s successor beneficiary, Maurice Poplar, Form 5498 and the annual statement for Maurice should state “Maurice Poplar as beneficiary of Brian Willow.” The final Form 5498 and annual statement for Brian Willow will state “Brian Willow as beneficiary of Joan Maple” and will show the FMV as of the date of Brian’s death or year-end valuation, depending on the method chosen. For more information about the reporting requirements for inherited IRAs, see Rev. Proc. 89-52, 1989-2 C.B. 632.”
    • The above is from p 20 of the 2017 Form 1099R/5498 Inst.  While this addresses 5498 reporting, it seems unlikely the IRS would want the account actually titled in a different manner. I did locate an article by Beverly from Dec, 2014 in which she uses the same names and wording as the 5498 Inst.. Am not aware of any more specific IRS guidance on this. 

    Submitted by William Tuttle on Fri, 2018-11-16 01:56

    However, the bottom line is that even though the IRS is very clear in the 1099-R/5498 Instructions. The custodians do what they do and they will not change because you want them to. Some very large cutodians do not follow IRS guidelines and the IRS does not challenge them. You should not lose sleep over this as long as it indicates that it is an inherted IRA.

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