ETrade Beneficiary IRA/Inherited IRA
Thank you all for the help. This forum has been a great source of support during this time. My mother passed away a couple of months ago and she left my brother and I her 401k at the company that she worked for. Its around 500k each. I know I have to roll it over to an inherited IRA at one of the main brokerages.
I was going to go with Fidelity but e-Trade offered a $1500 offer to move the money to them. Fidelity was unable to match it and couldnt offer anything. Now I know this bonus money is only like .03% of the whole thing, but couldn’t I keep the account at eTrade for the offer then move the account to Vanguard or Fidelity in like a year? I just want to make sure that it is possible because its not worth it for me to risk the whole enchilada for just 1500 bucks, but free money is free money. From my research ETrade would be able to accommodate my three fund portfolio without any fees (basically the same price as the other big guys).
However my main question, is the inherited IRA that eTrade offers the same type of account that Fidelity offers (also inherited IRA). Sorry if this is a stupid question but I am just making sure to double check everything. I just don’t want to get sweet talked into the wrong type of account and get hit with a massive tax bill.
Also for the first time I was made aware of a roth Inherited IRA vs. a traditional Inherited IRA. Why would there be two types of these accounts if the funds arent taxed at all until the distributions?
Anybody have experience doing this with eTrade?
Permalink Submitted by Alan - IRA critic on Wed, 2021-04-28 14:49
Sorry to hear of your loss. Brokers offering new money bonuses typically have a 1 year holding period to qualify for payment of the bonus, but E Trade might have different requirements. You should be able to find out from an E Trade CSR. Usually, market declines do not affect the bonus, just withdrawals. Are you sure that E Trade knows this is a non spouse inherited IRA (or you could also roll part of it to a non spouse inherited Roth IRA).
Am sure that you would open an E Trade IRA brokerage account to receive the direct rollover. They probably do not even provide other account types like mutual fund accounts. Since E Trade appeals to active traders, better check to see that there is no trading requirement for the bonus. Finally, note that E Trade has been acquired by Morgan Stanley, and acquired companies are usually subject to certain changes to leverage opportunities for the combined firm.
The tax code section for designated Roth accounts allows rollovers to inherited Roth IRAs, whereas you cannot convert an inherited IRA to an inherited Roth IRA. But you would not want to convert the entire 500k as it would produce a massive tax bill. The 401k plan would have to offer two direct rollovers for you to move a modest portion to an inherited Roth IRA, and the remainder to an inherited IRA, thus keeping the tax bill in logical bounds. Anytime pre tax dollars are rolled to a Roth account, inherited or not, there is a current tax bill due.
Note that your inherited TIRA or inherited Roth IRA are both subject to the 10 year rule (unless you are disabled or chronically ill). The inherited accounts must be drained no later than 12/31/2031. The new IRS Pub 590 B stated that you still must take annual RMDs the first 9 years, which would start in 2021, but is is likely that this was stated in error. This will certainly be corrected or confirmed before you would have to take a beneficiary RMD.
Finally, if your mother was subject to RMDs in 2021 that she did not have a chance to complete, the 401k plan will distribute the 2021 RMD per IRS requirements to you and your brother. This will be taxable income for you to report for 2021. This will be done at the time they process a direct rollover of the remainder of the balance.
If for some reason, one of you would rather receive the full year of death RMD, rather than pro rating it to each of you, this is legal, but the 401k plan might not consider it. If they would consider it, they would probably require a written request from the beneficiary who wants to receive the full year of death RMD. Of course, that would come out of that beneficiary’s remaining share.