IRA
An aging Mother (widow) recently passed away and her son was the primary beneficiary on her IRA. The mother was past 70 ½ and already taking her RMD each year. Her son was advised (by an accountant) to withdraw all the money out of his Mother’s IRA account which he did. This took place approximately 30 days ago. My question is – At this point in time can he do anything to establish an “Inherited IRA“ account since he has already taken possession of the money?
Permalink Submitted by Alan Spross on Tue, 2008-05-20 21:22
Nothing I am aware of except to hold the account “accountable” unless he had some valid reason for recommending the distribution. The following is pasted from Ed’s 12/06 newletter:
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Lessons Learned
Don’t touch inherited IRA funds without professional guidance. And even then, make sure the
professionals know the rules. Once inherited IRA funds are distributed to a non-spouse
beneficiary, the tax shelter is terminated and the distribution is taxable. This mistake cannot be
corrected.
Another lesson is not to waste even more money and time requesting a private letter ruling you
cannot possibly get as in this case where they were asking for an extension of the 60-day rule
when the 60 day rule did not apply. It can only apply to allowable rollovers and a rollover to a
non-spouse beneficiary is not allowable.
In this ruling, the trustee apparently asked the investment firm to do the transfer. The investment
firm compounded the trustee’s error by providing him with completed forms to sign and not
asking any questions to determine what he wanted to accomplish. They missed out on an
opportunity to advise the trustee of the issues and the implications of what he was requesting to
have done.
Bottom Line
When a non-spouse beneficiary does a rollover, there is no mechanism in any regulations to
undo the transaction. As soon as the funds leave the inherited IRA, there is a taxable event with
no going back. This trap catches many unfortunate beneficiaries each year. Perhaps, someday,
Congress will remedy this issue as they have remedied the 60 day rollover issue.
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