Beneficial IRA vs. Owner IRA
Client age 64, husband died 2008. I reregistered his IRAs in to two separate beneficiary IRAs (IRA FBO Jane Doe beneficiary John Doe Deceased). Her accountant asked “why am I doing that?” He stated that she has control and may name each child as a beneficiary. There are enough assets that if managed properly she may not need the IRAs for income.
The default RMD was suspended for 2009. However, a decision must be taken by 12/31/2010. What options might we permanently lose that they (client and accountant) should be aware of before moving the proceeds into her own two IRA accounts?
Steve
Permalink Submitted by Tom Brattain on Fri, 2010-08-06 20:47
You did not specifically indicate so, but on the chance that the deceased husband was younger, a beneficiary IRA would permit the deferals to continue until he would have been 70 1/2. If it is her own IRA, RMDs will be based upon when she turns 70 1/2.
Permalink Submitted by Alan Spross on Fri, 2010-08-06 21:23
What year would her husband have reached 70.5?
Permalink Submitted by Steven Sloan on Mon, 2010-08-09 18:21
Her husband was 5 months younger than her, and he would have reached age 70 ½ in 2017.
Does this make a significant difference?
Permalink Submitted by Alan Spross on Mon, 2010-08-09 22:06
Not in this case, but it would have made a difference if her husband was older than she is. For example, if her husband was 5 years older, she would have to start RMDs in the next year or two as a beneficiary rather than in approx 2017 if she assumed ownership. In addition, once her husband would have reached 70.5 if she passed without assuming ownership, HER successor beneficiaries would NOT get a new stretch based on their own life expectancies.
In your case, with each spouse being the same age and that age being over 59.5, there will never be an early withdrawal penalty if ownership is assumed, and the RMD will never be lower than if ownership is assumed, so ownership might as well be assumed now even though there is no significant downside unless she fails to assume ownership before he would have reached 70.5.
There have also been varying court decisions regarding bankruptcy protection for inherited IRAs. This is yet another reason to not postpose ownerhip assumption or doing the spousal rollover if there is no other disadvantage based on the relative ages of decedent and survivor.