Traditional IRA – Multiple Non-Spouse Beneficiaries – must they all set up inherited IRA accounts?
The Traditional IRA account holder has dies and is being left to 4 adult children as beneficiaries. The IRA has a small account balance. Schwab is saying all 4 siblings must set up inherited IRA’s to be able receive their 25% so distributions are matched to the beneficiary social. All 4 would simply like to receive a lump sum / after tax distribution instead of going through the hassle of setting up new accounts and then distributing the funds and closing them out.
Any thoughts or guidance? I was shocked to learn there wasn’t a direct distribution option available.
Permalink Submitted by Alan - IRA critic on Mon, 2024-05-13 23:23
Most all custodians use a processing platform under which distributions under an account can only be made to one person (SSN). In other words, the owner’s SSN was on the account, therefore any beneficiary who wishes to receive a distribution will have to establish a new inherited IRA. Once that is completed, a full distribution can be made.
Now if Schwab is also indicating that all 4 must establish separate accounts at the same time or no one gets a distribution, that would mean that one procrastinating beneficiary could hold the others hostage. This should not be allowed, and Schwab should be pressured to make the distributions to those beneficiaries who establish a separate inherited IRA.