Double inherited traditional IRA

Submitted by Ken HERBST on Wed, 2024-04-03 18:34

I inherited two IRAs from my aunt in 2023.They are both traditional IRAs.

#1. Her traditional IRA.

#2. Her inherited IRA from 2007 from her brother when he passed away

Are the two IRAs treated the same way as far as distributions? My aunt passed away last year in 2023 and I understand that when I inherit it, I have 10 years to take the distributions.

However, my aunt has inherited. Her brothers IRA in 2007 before the secure to act. I believe she was entitled to stretch that IRA over her lifetime. The question is do I get grandfathered in on receiving an already inherited IRA?and am I able to stretch it over my lifetime?

 

also, the bank that is holding both of these IRAs, in two separate accounts wants to consolidate them to one account for me. Do they have to be separate if they are treated differently? Or do I not get grandfathered in and it does not make a difference.?

 

thank you, Ken



Submitted by Alan - IRA critic on Wed, 2024-04-03 18:52

The rules here are complex, and the bank likely is not even considering the necessary background info. We need to know your aunt’s age in 2023, which you probably know. But what may be more difficult is what was her brother’s age in 2007, or your best guess?
It is clear that both of these IRAs fall under the 10 year rule, so you will have to drain them by 2033 and you cannot stretch either over your life expectancy. But you may or may not have to take annual RMDs starting this year pending your response to the age questions.

Submitted by Ken HERBST on Wed, 2024-04-03 19:53

My aunts age in 2023 when she passed was 94. It was in October and we took her RMD to satisfy the 2023 requirement.
Her brother my uncle who passed away in 2007 was 81 years of age when my aunt inherited his IRA. Keep in mind this was before the 10 year requirement rule. Would this be grandfathered to me upon inheriting it?
Her brother my uncle who passed away in 2007 was 81 years of age when my aunt inherited his IRA. Keep in mind this was before the 10 year requirement rule. Would this be grandfathered to me upon inheriting it?my understanding with the ten year rule rule is that I don’t have to take it every year, I can wait till you’re 10 and drain it all then. I am also aware to be careful of the tax situation by doing that.
 
Thank you for responding.  Ken
P S.  I cannot get a definite answer to the step up in cost basis for the  alternative valuation date. I am aware of the value on the date of death or the value six months from the date of death. However, a few people and upon my research said as long as you take out all of the non-qualified, taxable assets that it could be done any time within the six months to use as an alternate value date. The distribution day would be locked in as the step up cost basis. The market has been on a tear since she passed away.

Submitted by Alan - IRA critic on Wed, 2024-04-03 20:59

The alternate valuation date is not a factor unless aunt’s gross estate was 13 million and the value dropped over the 6 months from her death. Further, there is no basis adjustment for holdings in an IRA. All inherited IRA distributions you take are fully taxable unless she had made non deductible contributions, and those would show on line 14 if she has been filing that form when reporting her past RMDs and other distributions.
Both your aunt and her brother passed after their RBD required beginning date for RMDs and that results in the following requirements for you.
Her inherited IRA for which you are a successor beneficiary – you must continue aunt’s RMD schedule. Your age is immaterial. Assuming she was 79 in 2008, her RMD divisor would have reduced to 5.1 for 2024, 4.1 for 2025, 3.1 for 2026 etc. and this would drain the already inherited IRA in 2029 at the latest, so you will not even get 10 years out of it.  Note that you were responsible for completing her 2023 RMD for this account as well as her owned IRA RMD if she did not complete it. The deadline for that is 4/15/2024.
Her own IRA for which you are a designated beneficiary – for this one you can use your own life expectancy from the single life table based on your attained age in 2024. Since you are younger, this inherited IRA should last the 10 years until 2033.
Because the two RMD divisors are different, you cannot combine these inherited IRAs, and must keep the RMDs separate for each.

Submitted by Ken HERBST on Thu, 2024-04-04 02:42

Thank you very much for the clarification on the IRAs Alan. Yes I did take the RMD’s on both IRAs for tax year 2023.

The Alternative valuation date was not for the $13 million estate tax. (the Estate is nowhere near that. )And I realize that it would not work for a traditional IRAs . This was for me to get a new stepped up cost basis on her regular brokerage account, stocks, money market accounts, etc. Which have unrealized capital gains.

 

Thank you your input was very helpful

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