Inherited IRA Questions
My husband recently passed away. He was 84 at the time of his death and I was 79.
As his surviving spouse, I inherited his IRA. He had already taken his RMD before his death.
I also have my own IRA.
I’m wondering if there is any advantage in trying to consolidate the inherited IRA with my own IRA. It would be easier to manage one IRA versus two IRA’s.
It is my understanding that the RMD’s going forward for both IRA’s will be based upon my life expectancy, so I’d be required to take out the same RMD amounts either way. Is this correct?
For both IRA’s, I’ve specified my children as the beneficiaries. When I die, will the distribution requirements for my children be different for the Inherited IRA versus my own IRA? In other words, will they have to take money out of the inherited IRA more rapidly since they will have inherited an IRA that itself was inherited?
I’m sorry if this is a stupid question but this is very confusing.
Thanks for anyone’s help.
Permalink Submitted by Alan Spross on Fri, 2007-11-09 19:55
Sorry to hear of your recent loss, and your question is certainly not stupid because RMD rules are very complex.
You would be best served to roll the inherited IRA into your own IRA unless you want to have different beneficiaries on each IRA. If you are leaving the accounts equally to the children and they will know how and when to create separate accounts, then combine the accounts and let the children create the separate accounts after your death.
Your RMD will be lower if you assume the inherited IRA as your own, whether you combine them or not. But if you maintained the inherited IRA, your RMD divisor next year using 80 as your age would be 10.2. That’s 9.8% of the 12/31/07 balance. But if you either assume it as your own OR roll it into your present IRA, the divisor will be 18.7 and your RMD will only be 5.35%. If combined the entire 12/31/07 balance would be divided by 18.7 for your 2008 RMD.
There is also an advantage for the children here, since they can create separate accounts and each use their own single life expectancies. However, if they inherited your husband’s IRA from you, they would have to continue to use your single life factor and would therefore have to take much larger RMDs than if they inherited directly from your own combined owned IRA account.
If the combined IRAs happen to be over $1,000,000 in value and you are in a state that does not protect IRAs such as CA, AND if either of your IRAs came solely from an employer plan rollover, you should consider just assuming the inherited IRA as your own, but NOT combining it. This is to preserve unlimited creditor protection for the employer plan rollover. Again, this is probably unlikely, but it should be considered, just in case. If any of this is still unclear, please post back.
Permalink Submitted by Pat Evans on Fri, 2007-11-09 20:22
Thank you so much for your help.