Inheriting Traditional IRA
My siblings and I recently inherited a traditional IRA from our father. He passed away in 03/08 at the age of 83. The IRA was created in 12/03 from his pension at work. What do we need to do in order to get the money from the IRA, and what tax penalties are involved?
Permalink Submitted by Alan Spross on Fri, 2008-08-15 03:21
Sorry to hear of your loss.
There are no penalties unless you fail to take out the amount required each year. If you take the amount required or more, you will owe income tax but there is NO early withdrawal penalty.
You should file a death Certificate with the IRA custodian and create separate accounts for each of you. That will allow you each to take RMDs based on your individual life expectancies. The deadline to do this is 12/31/09. Bear in mind that if any of you takes your full interest in a lump sum, you destroy the benefits of tax deferral and also will likely cause your marginal tax rate to increase in the year of distribution. With separate accounts, each beneficiary can handle their own account as they wish. Each of you should also name your own successor beneficiaries ASAP.
Also, your father may well not have taken his full 2008 RMD prior to passing. In that case, the shortfall should be distributed to you in equal shares no later than 12/31/08. If he happened to have any other IRAs, you should also check to see if he ever made after tax contributions and filed Form 8606 to report them. In that case, a portion of your distributions will not be taxable.
Finally, do NOT endeavor to take any distributions and roll them over to another IRA account. These distributions cannot be rolled over and would become taxable. If you want to move the account to another IRA custodian, it must be done by DIRECT trustee transfer of the account.