Inherited IRA
I have a client who inherited an IRA from her mother. She has asked me to do a trustee to trustee transfer for her. When she showed me her statement, I knew there could be a problem and am looking for confirmation on what I suspect. The IRA is made out (at least on the statement) as – IRA FBO Deanna XXXXX, Pershing LLC as Custodian. There is no mention of the client’s mothers name on the statement. Has the current trustee already screwed this up?
Her mother died last year. If this is no longer considered an inherited IRA, I can only assume that the entire account is taxable. Should this have been reported on her 2008 return or her 2009 return?
Steve B
Permalink Submitted by Alan Spross on Tue, 2009-06-23 20:19
Steve,
You are correct. The IRA registration should be in approved inherited format. Hopefully, she just showed you a statement from the wrong IRA account, not the inherited one. If she attempted to roll over the inherited account by taking a distribution from the IRA, that distribution was fully taxable (should be a 1099R) when distributed and the contribution to the new account is an excess contribution which must be corrected. If this is the same custodian, it could also be a custodian’s error. Did she provide them with a death certificate?
Permalink Submitted by Steve Borklund on Wed, 2009-06-24 18:05
Alan,
Thank you for responding. It’s reassuring, though unfortunate that my assumptions may well be correct. It’s my understanding that this is “the” inherited IRA. She has no other IRAs. I further understand that she has not attempted to take anything out of this IRA. I believe that the current custodian is the same as her mother’s custodian, but I will find that out for sure. Regardless, if they are one in the same or different, if the inherited IRA is not in approved inherited format, am I correct in assuming this is no longer considered an inherited IRA? It’s my understanding there are no do overs if the custodian makes a mistake and titles the IRA in other than approved inherited format. And if this is no longer considered an inherited IRA, is she now liable for taxes on the entire IRA proceeds? I will also find out if she provided her mother’s custodian with a death certificate. Again, I can only assume that she did since her mother’s custodian would have needed some proof of death. Is there another reason why you ask that question?
Permalink Submitted by Alan Spross on Thu, 2009-06-25 01:35
No, just fishing for some idea how this could have happened since the only way an IRA gets a name change is either a spousal assumption or a transfer incident to divorce. Best bet might be if enough negligence can be attributed to the custodian to exact a settlement from them. It should be easier if there is only one custodian involved instead of two as in a transfer situation. But first thing is to get ahold of more official documents that just an interim statement, such as the opening confirmation showing the SSN etc. There is no set format for an acceptable registration, other than the decedent name should show up somewhere in there.