spouse inherited IRA – Vanguard is saying it’s all or nothin
Hi all,
Spouse inherited a large IRA from her husband (he was 80, she’s 51).
We would like to keep part of the money for her use now and put some of the money in her own IRA so it is not subject to the RMD.
Vanguard says that the spouse can EITHER put the money in a beneficiary IRA (thus subjecting it all to the RMD) OR assume in her own name (thus it won’t be accessible without a penalty since she is under 59.5). They are insisting that Publication 590 says there are three options – and the spouse must choose only one of those three.
They also say that it doesn’t work to put the money in the beneficiary IRA and then transfer some to her own IRA.
I cited Section 1.408-8 PP A-5 which addresses this issue but they keep referring me back to publication 590. (Which – as far as I can see does not say that you have to choose one of the three options).
All of the other custodians that I have talked to (Fidelity, Schwab) are able to do what we are suggesting.
Does anyone have an idea of how to handle this with Vanguard? (Or – perhaps they’re right???)
Thanks!
Dana
Permalink Submitted by Al Fry on Thu, 2010-01-07 22:21
See if they will give her a check for part, then roll the rest into a beneficial IRA. Then she would have 60 days to roll the check into her own IRA. Or, she can move it all to another custodian that is more considerate of the rules in an inherited IRA, then roll the amount she wants into her own IRA.
Permalink Submitted by Alan Spross on Thu, 2010-01-07 23:36
Al is correct.
Refer Vanguard beyond the list of 3 options on p 20 of Pub 590 to the last paragraph of that section which states what Al just suggested. She must take the RMD first to the extent that her husband had not taken it, and then could take out whatever additional amount she wanted to deposit in her own IRA. Of course, she should be conservative in determining the amount because once it is in her own IRA, it cannot go back to inherited status. That could lead to a 72t plan down the road and that should be avoided if at all possible.
Vanguard needs to do some training. Did this come from a dedicated retirement plans unit?
Permalink Submitted by Anonymous (not verified) on Fri, 2010-01-08 18:41
They probably look at the phrase “entire interest” in Section 1.408-8 PP A-5 and thus tell you that is the only option. Since they are not tax advisors, I would proceed with the recommendation above.
pmk