Stretch IRA
What are your options when inheriting a Stretch IRA? TO clarify it is already a beneficiary IRA that now the original Beneficiary had passed away and left the money to one of my clients. Does she only have lump sum or can she then spread the payments out over a certain time period?
Permalink Submitted by Alan - IRA critic on Thu, 2019-05-23 21:32
Your beneficiary (successor beneficiary) will have to continue the RMD schedule of the first beneficiary (designated beneficiary). However, the challenge is to be able to reconstruct the history of the IRA in order to know which divisors are actually correct. The first beneficiary may not have been using the correct divisor. Also, if the first beneficiary was a spouse (eg wife inherited husband’s IRA) and your client is the child, she might find that mother had actually defaulted to ownership by failing to take the full beneficiary RMD in any year. If that were to occur, then your client would no longer be treated as successor, but could use her own single life expectancy. That could make a huge difference in her stretch period. There is no lump sum distribution required unless in a rare situation, the custodian has that requirement included in the IRA agreement.