A confusing scenario (at least to me)
A husband/father taking required minimum distributions with his wife as his primary beneficiary and his daughter as his contingent beneficary, died. However, the wife had predeceased him so the daughter inherited the IRA. She was going to continue his distribution schedule (could she do that)in 2009; however, with the 2009 exception she was going to suspend distributions unitl 2010; however, she recently died (June of 2009) and her primary beneficiary was her husband.
He has moved the IRA from another bank to our bank and was going to continue distributions in 2010 on the schedule that the father in law was on and which his wife had planned to stay on (can he do that?). BUT he would rather not take distributions;HOWEVER, if he assumes the IRA as his own (then he should not have to take distributions until he reaches 70 1/2, he wants to know will he have a penalty if he changes his mind and wants to start taking distributions prior to turning age 59 1/2?
What if he remains as a beneficiary of his wife, what would his options be? Apparently under Pub. 590 he can put off distributions until his wife would have turned 70 1/2, but what if he wants to take distributions sooner? And what if he insists on remaining on the Father in law’s RMD schedule?
Permalink Submitted by Anonymous (not verified) on Wed, 2009-06-24 22:21
Randazzi, this is an interesting scenerio and may require some looking into the 2002 Final RMD Regs. I will try to do that, but right off the bat:
The assumption issue inside the Inherited IRA does not sound correct to me. “Assuming”, generally, can only take place when the primary beneficiary of the original IRA was the 100% Spouse. The way I read your scenerio, the spouse had already passed away, which means she was “out of the picture” so to say. The contigent beneficiary takes on that role as primary and that was not the spouse. Even if he takes over the Inherited IRA as Spouse, I don’t see this being able to be flipped to a regular IRA again.
More to learn and read from others and maybe another post.
pmk
Permalink Submitted by Alan Spross on Wed, 2009-06-24 22:43
pmk is correct. This is a non spouse inherited IRA and cannot be assumed or rolled over. The spousal rollover does not extend to the spouse of a non spouse beneficiary. Advise him that a distribution of any type was or will be immediately taxable, so I hope he moved the account to your bank by direct trustee transfer.
He must also deal with his RMD obligations, which are those of a non spouse successor beneficiary. Starting in 2010, his RMD would be determined by the non recalculated (1.0 reduction) divisor his spouse would have used in 2010. Not knowing the year the original owner passed, the age of the 06/09 decedent in the year following the owner’s death would need to be determined, and the divisor for that year is reduced by 1.0 each year. The client’s age and life expectancy never comes into play here at all, but of course he should still name his own successor beneficiary ASAP.
Pub 590 does not address the issue of successor beneficiaries in any useful manner, so you would go crazy if you tried to figure this out from Pub 590.
Permalink Submitted by Linda Randazzo on Wed, 2009-06-24 23:50
Thank you both. You have helped to feel on track with your insight.
Permalink Submitted by Anonymous (not verified) on Wed, 2009-06-24 23:57
So alan_o, can you please confirm my understanding of the Inherited IRA rules:
You can never stretch the Inherited IRA down the line for ever. Once it is inherited by the first Inheritor, those rules must continue, even as it gets Inherited several times further. I guess in that way, the IRS eliminates the constant minimumization of taxes.
Thanks.
pmk
Permalink Submitted by Alan Spross on Thu, 2009-06-25 00:52
Right.
See (c) in Q&A #4 of the att’d IRS Reg. (deceased beneficiary):
http://www.taxalmanac.org/index.php/Treasury_Regulations%2C_Subchapter_A…
Once an IRA interest passes to a non spouse, the stretch always stops with the life expectancy of that non spouse. There are even more confusing rules with spousal beneficiaries who do NOT take ownership, but will leave that for another time.