Transfer Inherited IRA to Another Firm
Hello everyone, I hope you all had a great Christmas. My question pertains to the transfer of an Inherited IRA to another firm. My mom inherited an IRA from her sister who passed awasy last year. The IRA was originally setup at Fidelity. When my mom went to Fidelity to claim the IRA account, they setup a new Inherited IRA for my mom and transfer the entire balance of the original account over. Due to my mother being over 70.5, she has taken two distributions so far from the Inherited IRA (one for 2008 and one for 2009). My mom has not been too happy with the service at Fidelity and would like to transfer it to another brokerage (I think she wants to transfer it to OptionsXpress or Charles Schwab). When she transfer the account, does she need to setup a specific Inherited IRA account or can she simply setup a regular trandition IRA account? I try to help her setup the new account at both of these firms and do not see an option for Inferited IRA (the only options I see are Traditional IRA, Rollover IRA, and Roth IRA). Additionally, when she transfer the money from brokerage to brokerage, will she incur any tax or panelity? Your guidance is much appreciated.
Sincerely,
George
Permalink Submitted by Alan Spross on Mon, 2009-12-28 02:20
George,
She must set up an inherited IRA account showing her interest as beneficiary and her sister’s name as the original owner. The only way funds can be moved to another firm is by direct transfer, so she must make sure that no check is sent out made out to her. If there is a check to be issued, it must be made out to the new IRA custodian for her benefit as beneficiary. She CANNOT own the account and it can only be continued in beneficiary format for her benefit. She should get help from the new IRA custodian in getting the new account set up correctly and they need to know that she is a non spouse beneficiary.
There is no tax due on the direct transfer to another custodian, but as stated above once any check is made out to her the entire amount of that check will be taxable and there is no way around that.
There was no need for an RMD in 2009 because Congress waived 2009 RMDs. But she will have an RMD requirement for 2010 that must be taken by the end of 2010 and an RMD for every year thereafter. These RMDs are taxable but there is no penalty unless she fails to take the required distribution.
Permalink Submitted by Al Fry on Tue, 2009-12-29 00:45
Also, just to clarify, if your aunt died in 2008, and if your aunt was over 70.5, then the 2008 RMD would have been your aunt’s RMD based on HER age. Even if your mother had been under age 70.5, an RMD for 2009 would have been required based on your mother’s age, if it had not been waived. So for 2010 and the future, the RMD is based on the single life factor for your mother’s age this year, minus one for each year.