Can bank refuse to do trustee-to-trustee for inherited IRA?
My mother passed away in December 2007 and left a smallish traditional IRA balance in a CD at a local credit union. Both my sister and I are named as beneficiaries. There is no spouse involved.
I’d prefer to transfer this IRA into an inherited IRA in order to take advantage of the tax deferral. In trying to arrange for the credit union to send my share to a new trustee, I am being told by them that they will only issue checks, one each in my name and my sister’s. They will not do a trustee-to-trustee transfer. I have not yet determined whether we can at least set up separate inherited IRA accounts at the bank itself (which I could hopefully then transfer a little later).
My question is: can the bank in essence require us to cash out the IRA balance, or are they required to allow us to do everything necessary for a transfer to an inherited IRA, including account retitling and trustee-to-trustee transfers?
Permalink Submitted by Tony Cardiff on Sat, 2008-05-31 03:27
One additional point I should mention in case it matters — my mother had already been taking required distributions for several years.
Permalink Submitted by Alan Spross on Sat, 2008-05-31 06:01
Unfortuneately, the tax code does not require an IRA custodian to offer direct transfers, although most of them do. The direct trustee transfer is only required of QRPs subject to Sec 401a(31). But even that requirement only applies to the plan participant. The PPA provided for direct transfers to an inherited IRA for non spouse QRP beneficiaries, but even here the IRS indicates that offering such a transfer is optional for the plan.
It therefore appears that the CU is only guilty of anti consumer business practices here. Possibly, their staff simply does not know how to process a direct transfer. In that case, you might consider asking for a check made out to your selected IRA custodian(s) FBO each of you as beneficiary of (mother’s name). You could then hand carry or mail it to the new custodian. Since the check would not be made out to you, you do not have constuctive receipt of the funds, and therefore there is no distribution. Upon opening the account, you effectively have a direct transfer. If the CU then insists on issuing a 1099R, you will have to report it on your tax returns with an explanatory statement and copies of the checks etc to show that this was not actually a rollover.
IRA custodians do not put much value on non spouse beneficiaries since such accounts must be drawn down and cannot receive contributions. But if they want to get rid of the account, they at least ought to provide a transfer or they are effectively holding the beneficiaries of their customer as bound to the CU if the beneficiary wants to take advantage of any available stretch or other investment options.
You also should read the IRA agreement in total to see if they are violating any of their own terms and conditions.
Permalink Submitted by Tony Cardiff on Sat, 2008-05-31 19:36
Thank you for the helpful reply. I may have to dig a bit to find the governing IRA agreement, but if I do come across it, I won’t be surprised if the topic of non-spouse inherited IRAs is not really covered. I’ll also try to see if the credit union will allow us to create inherited IRAs there, at least as an intermediate step to getting the money where we really want it. At least that way the deferral on everything but the RMDs can remain in place.