Inherited IRA
My brother in law passed away in mid 2020. He had an IRA account for which he named his trust as beneficiary. His second wife is the trustee of the trust. My brother in law named his second wife 40% beneficiary of the trust and his 3 daughters each 20% beneficiaries of the trust. His wife, current trustee, wants to distribute the 20% to each respective daughter but she wants each to withhold tax on their respective amount. Is this even possible / legal / acceptable ? Thank you.
Permalink Submitted by Alan - IRA critic on Tue, 2021-05-11 20:31
If the trust provisions allow the trust assets including the IRA to be distributed out of the trust to the daughters, the efficient way to do that is for the trustee to assign the appropriate share of the inherited IRA to an inherited IRA account for each of them. This is not a taxable distribution since there is no distribution from an IRA until requested by the daughters, who will be subject to the 10 year rule (unless the trust fails qualification), and will not have annual RMDs . In other words, having a distribution made to the trust with withholding should only be considered if IRA distributions are going to be accumulated in the trust and the trust is going to pay the taxes at the higher trust rates.