Inherited IRA FBO Trust; 2nd to die -Inherited of an Inherited
I currently have an inherited IRA where the trust is the beneficiary. Annually we distribute the RMD to the Trust; and it further gets distributed to the spouse.
The spouse passed. The Trust reads that it terminates and distributes outright to the children when the spouse passes.
The value of the inherited IRA is $200,000 and there are 2 beneficiaries.
Are the options I listed below my choices; or is there something I’m missing?
- Continue to keep the inherited IRA opened and distribute $100,000 in 2024 to the trust, distributing out $50,000 to each beneficiary; and the remaining in 2025; equalizing the distributions. What are the pros and cons? I understand that the children will be reporting the amounts they each receive as income (con).
- Open an Inherited of an Inherited IRA (2nd phase); determine the distribution factor based on the eldest child; continue for a 5–10-year period of time.
Can the trust continue, or does it need to get distributed to the children the year following the beneficiary’s death?
Permalink Submitted by Alan - IRA critic on Tue, 2024-11-05 14:37
Hopefully, the IRA custodian will cooperate with the trustee regarding assignment of the inherited IRA out of the trust to the trust beneficiaries.
If the 2024 RMDs have not yet been distributed, this can be delayed and distributed to the trust beneficiaries into their own inherited IRAs. Was the surviving spouse of the age that would produce a 50% (RMD divisor 2), or where is the 100k figure coming from?
If inherited IRAs can be established by the children, the annual RMD schedule being used for the trust must be continued? That schedule depends on several variables regarding when the original owner passed (pre or post RBD and pre or post Secure Act). If the 10 year rule applies now, continuing the current RMD schedule will drain the inherited IRAs in 2 years if the divisor is already down to 2.