Can 3 inherited IRA accounts combine into one?
Aunt died [age 66] and left three separate IRA accounts to a niece. Niece [age 55] wants to stretch the IRA’s. I know we can establish three separate “Aunt Mary IRA FBO Niece Linda” accounts. For simplicity of paperwork, can all three be combined into one account?
Permalink Submitted by mk foss on Sat, 2009-03-21 21:30
Yes, you can combine inherited IRAs if they’re all inherited from the same person. You cannot combine inherited IRAs with your personal IRAs or with IRAs inherited form another person.
Permalink Submitted by Alan Spross on Sun, 2009-03-22 00:00
When you combine them, it must be done by direct trustee transfer rather than rollover since a non spouse inherited IRA cannot be rolled over. If you receive a check made out to you, it becomes an irrevocable taxable distribution.
The only time these 3 accounts cannot be combined is when circumstances result in a different RMD divisor for an account vrs the others. This could happen if an IRA was left to two beneficiaries and separate accounts were not created by the end of the year following the owner’s death. If you were the younger beneficiary, you could not use your own life expectancy in that situation for your share of the inherited IRA. This is fairly rare, but thought I should mention it just in case.
Remember to name your own successor beneficiaries, and also to check to see if the owner had an unrecoved basis from non deductible IRA contributions. If so, you would inherit your share of the remaining basis, and some of your RMDs or other distributions would be tax free. You would need to file Form 8606. Check decedent’s prior tax returns for a Form 8606, which would indicate a basis in her IRA.
Permalink Submitted by Joseph Arsenault on Thu, 2009-03-26 16:20
Alan,
What if the check received is made out to the receiving trustee fbo the beneficiary? Is this technically considered a diret transfer even though the beneficiary received the check? Or is this also a taxable distributuion?
Permalink Submitted by Alan Spross on Thu, 2009-03-26 22:39
The format you describe would comply with direct transfer requirements. Although the beneficiary received the check, it cannot be cashed by him in the current format. This is how many 401k rollovers are done, ie the check is made out to the IRA custodian FBO the employee, mailed to the employee who in turn forwards it to the IRA custodian.
The difference here is that a 401k rollover is still reportable on Form 1099R and 1040, but an inherited IRA to inherited IRA should NOT generate a 1099R. If there is any question, the IRA beneficiary should contact the IRA custodian now and ask them to make sure that no 1099R is issued. If one DOES get issued, it is not fatal, but would cause a hassle in convincing the IRS that what really happened was a transfer not a disallowed rollover that would create a taxable distribution.
Permalink Submitted by Joseph Arsenault on Thu, 2009-03-26 22:49
Alan, thanks again for a thorough answer. I always wondered about that for both 401k rollovers and inherited IRAs. Great information. Thank you