Trad IRA to Beneficiary IRA…
What’s the most efficient method of transferring a Traditional pre-tax bank IRA to a Benefiary IRA at death of the owner? The child/beneficiary is having the check sent to her…does the 60 day rule apply to beneficiary IRA’s? Must it be trustee to trustee transfer? Can the beneficiary take the check back to the bank? Thanks.
Permalink Submitted by Alan Spross on Wed, 2009-12-09 19:50
The check can be sent to the beneficiary but cannot be made out to the beneficiary, it must be made out in a format similar to “ABC brokerage for the benefit of Joe Smith beneficiary IRA”. That qualifies as a direct transfer. The 60 day rollover rule does not apply here because there are no rollovers allowed for a non spouse beneficiary. If this check is made out to the beneficiary, getting the bank to reissue it to the new IRA custodian FBO beneficiary is the only way to prevent this from becoming a taxable distribution. Banks should know this much and/or they just don’t care if the beneficiary is stuck with a distribution.
Unless the amount is small enough not to matter, this beneficiary may have to really push this issue with bank management unless they actually asked for this. It becomes more difficult if the beneficiary is partly to blame for the situation, but more beneficiaries are facing this problem for the first time while the banks should know better or at least warn the beneficiary of the consequences of a distribution.