Merged Beneficiary IRA with traditional
An acquaintance moved his beneficiary IRA to e*trade and he tells me they merged it with his traditional IRA. I told him to get this revresed because the ben. IRA needs to be kept separate due to the MRDs that will need to come out in the future based on the ben. IRA account value. I’m also wondering if this was a taxable event, i.e., this contitutes a taxable distribution of the ben. IRA. Comments?
Permalink Submitted by Alan Spross on Sat, 2009-10-03 18:56
Yes, it is a taxable distribution of the inherited IRA, unless it was inherited from a spouse, and then it is just a spousal rollover.
It is hard to understand how E Trade could combine these accounts if the inherited IRA was properly titled. He needs to determine exactly how this happened. In cases like this, E Trade would have to be almost 100% negligent with no contributing action on his part, in order to hold them responsible for the damages. Those damages would have to be calculated based on loss of tax deferral and assumed tax rate differences for this year vrs future years. The first thing to do is to pressure them to restore the inherited IRA account. If they will not, facts and circumstances might justify requesting a PLR from the IRS allowing the inherited IRA to be restored, but these are expensive and should be carefully considered.
If there is no recourse against E Trade, then he not only has a taxable distribution of the inherited IRA, but also has an excess contribution to the owned TIRA that would have to be corrected by the usual method. The usual time limit applies to avoid the 6% excise tax on the excess contribution.
Permalink Submitted by Richard Brewer on Sun, 2009-10-04 00:17
Just as I thought. Thank you.
Permalink Submitted by Richard Brewer on Mon, 2009-10-05 14:14
It turns out e-trade was possibly getting more of a bad rap on this than they deserved. The Ben. IRA account was set up but when the money was transfered in it was put in an existing Trad. IRA account. If this hadn’t been caught it would have been a mess but they are aware of the problem and it should be easily fixed. I’m not sure if e-trade caught this, thier client or me. Bottom line: you get what you pay for.