Transfer of Inherited IRA

Submitted by Gerard Stellwagen on Thu, 2019-10-24 16:21

My client is attempting to transfer an inherited IRA in the form of an annuity from one insurance company to another.
The new company is demanding paperwork and attestations from the current company that don’t exist. The new company had originally processed the exchange as a traditional IRA. Obviously, the name on the annuity is different if it is a traditional IRA.
Will the name on the annuity matter so long as the client takes the required minimum distributions?



Submitted by Alan - IRA critic on Thu, 2019-10-24 19:37

  • An inherited IRA is still a traditional (or Roth) IRA. If the new custodian titled this an an owned IRA (not showing the name of both the decedent and beneficiary), this can become a fully taxable distribution. However, if the title is corrected right away before any transactions take place, there would be no consequences. But if the transfer went into an already existing TIRA with an existing balance, then things become more complicated and more difficult to resolve.
  • Keeping the new IRA as an incorrectly titled owned IRA can result in all kinds of unintended consequences. For one, any distributions taken would be subject to the early distribution penalty if under 59.5. The IRS might discover the error at anytime (perhaps by comparing 5498 forms) and they would then require the entire transfer to be taxed. If the tax year is closed, then they could charge 6% excise taxes for each year as an uncorrected excess contribution to the IRA. 
  • Inherited IRA annuities are often problems for beneficiaries for numerous reasons. They may not be the best type of account for beneficiaries even if they function OK for the owner.

Add new comment

Log in or register to post comments