Inherited IRA Issue
My Client’s husband passed away. The brokerage firm journaled his ira into an Inherited IRA for the wife. They should have journaled it into a rollover IRA because the beneficiary is a spouse. The brokerage firm will not open a rollover IRA for the spouse. If we open an inherited IRA at another firm to transfer assets to, can we eventually combine this inherited IRA with another IRA rollover without causing a taxable event?
Thanks for your help
Dave
Permalink Submitted by Alan Spross on Wed, 2008-06-04 19:28
That is a very odd decision on the part of the brokerage firm. Perhaps they have an explanation. For example, if the surviving spouse is not yet 59.5, assuming ownership would result in distributions incurring the early withdrawal penalty. They might want to avoid that situation.
Your client can also take distributions from the IRA and roll them over to her own IRA to the extent they are not RMDs. In fact, if RMDs are required from the inherited IRA and not taken or if your client makes a contribution to the IRA, the account automatically defaults to owned status under the tax Regs.
So there are various ways to change the funds to ownership status, with taxes only due on the amount of a distribution that is required under RMD rules.
Based on the ages of both the decedent and the surviving spouse, assuming ownership is not always the best decision.