Inhereited IRA
My Mom recently inhereited a Traditional IRA from her sister. Her sister is over 70 and had been withdrawing the MRD amount from the IRA for the past year.
My Mom is 70 this year (Birthday 5/1/1938). According to Fidelity (where the account is managed), my mom can withdrawal from the account this year base on her deceased sister’s MRD amount (basically the decased’s MRD minus what she has already taken out prior to her death this year). Next year, my mom will use her Life Expectency Value to determine her MRD. Is this correct?
My Mom also has a separate IRA. When she calculates her MRD next year, should she do it with the total amount (the Inhereited IRA + her own traiditonal IRA) and take our the approiate amount from each account? or can she calculate the total MRD needed and withdrawal it from either one of the account. Since her own account is pretty small, I was thinking that she can empty the small account out first.
Best regards,
George
Permalink Submitted by Alan Spross on Wed, 2008-08-20 22:26
George,
The RMDs information you quoted from Fidelity is correct. With respect to her inherited IRA, note that your Mom should name her own beneficiary on the account when she re registers it as beneficiary of her sister. She should also check to see if her sister ever made after tax contributions. If so, a portion of her distributions would be tax free. She cannot roll the inherited IRA over by withdrawing the funds, so if she wants to change IRA custodians, she must only do so by direct trustee transfer of the account.
In the future, your Mom needs to keep the RMDs between her owned IRA and her inherited IRA totally separate. They should be calculated separately and withdrawn separately. Different divisors will also apply because the Tables used for each are different.
Permalink Submitted by George Sun on Thu, 2008-08-21 00:08
First of all, alan-oniras, thank you for your advice. I have one additional question. I was under the impression that my mom will be using the same life expectancy value for both the Inhereit IRA as well as her own (both from Publication 590 Appendix C. Table 1). If two separate value shall be used, please let me know who one is appropriate for which account.
George
Permalink Submitted by Alan Spross on Thu, 2008-08-21 01:45
Each IRA RMD uses the prior year end value for that particular IRA. Your Mom’s age will be based on her age as of year end also, however it will be the end of the year for which the RMD is taken, not the prior year.
The difference is the use of the RMD table. For her own IRA, she will use Table III (Uniform Lifetime Table) and use the divisor shown for each year. However, for her inherited IRA, she will use Table I beginning in the year after her sister’s death. For each year after that she subtracts 1.0 from the prior year divisor, so she really only needs to look up the Table I divisor for the first year. For example, if her sister passed this year, your Mom’s first RMD year will be 2009 and she will reach 71 in 2009, so her divisor will be 16.3. A note should be made that it will be 15.3 the following year, then 14.3 etc, so there is no need to look up the Table I divisor after that first year.