Non-spouse Beneficiary IRA’s
We have a client whose father Tom passed away on 12/25/07 (DOB 01/29/1941). Tom has three children: Larry (DOB 3/8/63), Lynn (DOB 5/4/66, pre-deceased Tom on 08/12/07, died with no heirs), and Laura (DOB 01/29/62, dis-inherited by father in the will as well as beneficiary designations on IRAs). Tom had three IRAs with two combinations of beneficiaries. The first and second IRAs had Larry and Lynn sharing 50/50. The third IRA has Lynn at 100%. None of them had contingent beneficiary designations. As noted above, Lynn pre-deceased Tom, leaving just Larry and Laura as survivors. However, Laura was specifically excluded from the estate, leaving just Larry. Assuming that these three IRAs end up in Larry’s possession as sole beneficiary, I have the following string of questions:
1. Can these accounts be combined into one IRA even though the stated beneficiaries on the first two are both Larry and his deceased sister Lynn? Or, do they have to be maintained seperately along the lines of the beneficiary designations?
2. How would the RMD be calculated for this/these account(s)? If they can be consolidated, I assume that we use the single life table based off of Larry’s DOB as the sole survivor, or the oldest of the beneficiaries even though his sister pre-deceased their father????
3. Is 2008 the first year that we have to take an RMD? Note that Tom was not at 70.5 at the time of his death…
4. If these accounts need to be maintained seperately due to seperate beneficiary designations, does each need to have an RMD taken every year, or can the RMD be taken from one account?
5. Any other guidance that I may need to be aware of…
Thank you!
Scott A. Garrison, CPA
Financial Achievement Services, Inc.
[email protected]
Permalink Submitted by Alan Spross on Fri, 2008-03-07 06:17
1) The first two accounts can be combined as an inherited IRA for Larry’s benefit, but the third one will likely go to the estate and therefore will not have a designated beneficiary, and fall under the 5 year rule. However, the IRA agreement should still be checked to be sure that Tom’s estate is in fact the default beneficiary. If the estate closes and this 3rd IRA is assigned to Larry, it should still remain separate from the other IRA(s) due to the restricted RMD requirement.
2) Larry’s remaining single life expectancy for the first two only (see above). Lynn just totally disappears as a factor due to her DOD.
3) Yes, 2008 is first RMD year for Larry’s two accounts. The other one will be under the 5 year rule.
4) The first two could be combined, or kept separate with the RMD aggregated in any combination since they were inherited from the same decedent. The only rule for the 3rd account is that the entire amount needs to be distributed by 12/31/2012.
5) Larry should name successor beneficiaries ASAP. He can change IRA custodians if there is a need to, but ONLY by direct transfer. Any check made out to him constitutes a taxable distribution as it’s not rollover eligible. This is a critical common error. Finally, Larry should check with Dad’s past tax records to see if there is any tax basis in the IRAs per Form 8606, as he would inherit any unrecovered basis.
Note: I don’t think Larry and Laura are going to be speaking…….but even if he wanted to, there is no way to direct any part of these IRAs to Laura by disclaimer.