Inherited IRA Options
My client’s father passed in April. We have setup an inherited IRA and want to request a transfer of his portion of his father’s IRA into that account. The credit union where the father’s IRA is gives him four options that he must pick from: 1)Immediate lump sum payment 2)Periodic payments over my client’s life expectancy 3)5 year payout and 4) payments over the father’s life expectancy. They will not separate his portion into a beneficiary account without him choosing one of these options and they suggested he complete the paperwork requesting a lump sum payment. With other similar situations, I have not had to select a payout option in order to setup the inherited account. Can you please advise whether this is unusual? Should the client select option 2 and try to provide instructions that they not make any payment until 2011 and in the meantime, we make the request for the custodian to custodian transfer of the assets? I want to be sure we do not make a mistake and I know inherited IRA handling must follow very specific rules. Thank you for your insight.
Permalink Submitted by Alan Spross on Thu, 2010-06-10 17:15
Your idea is good if an option must be selected. Their procedures would not be a typical overall, but might be used by certain banks or CUs.
Client should determine if the CU will do a direct trustee transfer of the funds and also if there is an RMD due this year for his father. If the CU will not do the direct transfer, a check made out to the new custodian FBO client’s beneficiary IRA will still qualify as a direct transfer of the funds.
Most critical is avoiding any distribution to the client other than any back RMDs of his father since client cannot do an indirect rollover of any such distribution.