Non Spouse Inherited IRA
My dad passed away 8/19/07 he was 77. He had a Traditional IRA which he named myself and my three siblings beneficiaries. I have a few questions. I asked if I could leave the IRA as a beneficiary distribution account, I think it was called a Beneficial IRA. WAMU says there is no such thing, that I would need to do it as an Inherited IRA. Are Inherited IRA’s and a Beneficial IRA’s the same? I read that it would be best if I left it titled as, “John Doe IRA (deceased August 19, 2007 for the benefit of Jane Doe”. Any suggestions would be great, my ultimate goal would be to make it a beneficiary IRA titled as shown above and then do some kind of asset transfer out of WAMA. I believe if I do it this way and stretch it out over my lifetime (I’m 39) I would pay the least in taxes. Is this true? Also, can I name my minor daughter as the beneficiary if something happens to me? This has been very confusing and the IRA department at the bank does not seem to know much.
Thank you
Permalink Submitted by Alan Spross on Wed, 2007-10-03 00:12
Sorry to hear of your recent loss.
Yes, firms have different names for the same thing, ie. an IRA in which you hold a beneficiary interest rather than being the original owner. The IRA should be re titled and either your father’s name or the beneficiary names can be shown first as long as both as shown and your father is shown as deceased.
Usually, when there are multiple beneficiaries, they are not all going to want to stretch the IRA as you do. Someone may want to cash out their interest, but it is best to just take out the relatively small RMD each year to get continued tax deferral. As long as no one is going to disclaim, you should each create separate accounts that will allow you each to control the investments and use your own individual life expectancy for the RMDs. You should also name your own successor beneficiaries to your inherited IRA account, and the format for that depends on state law. This is probably not large enough to warrant setting up a trust for your daughter, so you are going to have to depend on WAMU to know what is needed, possibly an UGMA or UTMA account may need to be named to receive her interest, if a minor at your death.
Next, you should check to be sure your Dad had no delinquent RMDs including this year’s RMD. If so, each of you must take 1/4 of it prior to year end, but your own RMDs do not have to start until December, 2008. You should also determine if your Dad had any non deductible contributions, because his remaining tax basis is also inherited equally by each of you. That would make your distributions less than 100% taxable. Look for Form 8606 on any of his prior tax returns, and/or check with whoever has done his taxes. Since he hopefully took RMDs recently, if there is no 8606 on his recent returns, you can forget this part (unless you think these contributions were made and the recent returns were incorrect).
Finally, set up an inherited IRA with your new choice of custodian, using the same registration and have your inherited IRA directly transferred to the new firm. Under no circumstances allow WAMU to cut you a check because you CANNOT rollover that check, and the entire amount would become immediately taxable. This just might be the most common and costly error made in the IRA world, and there is NO correction for that error. You should also warn your siblings about this. Good luck.