IRA Beneficiaries
How should IRA beneficiaries be reflected if there are two(2) children and you want each one’s 50% share to go into his/her individual successor accounts so that each may invest and control their individual shares and each may use their own remaining life expectancy periods to take annual withdrawals?
Permalink Submitted by Alan Spross on Mon, 2010-10-04 23:28
Nothing special must be done with the IRA while owner is alive, but the beneficiaries or other persons of influence must inform them that separate accounts need to be created prior to the end of the year following the year of the parent’s death.
If they are very close in age, failure to create the separate accounts by that deadline will not cost the younger one much of their stretch, because separate accounts can be created at anytime. But for each to use their own life expectancy, it must be done by the aforementioned deadline.
If the IRA owner feels that they cannot be trusted to act in time, they could just divide the IRA into two equal accounts, each with it’s own beneficiary.
Permalink Submitted by David Hochstadt on Mon, 2010-10-18 21:23
Hi Alan,
Thanks for the response. Two additional questions:
1. For someone w/ a Rollover IRA & Simple IRA that will be rolled over, should the Simple IRA be rolled into a separate, newly created Rollover IRA? Or can it be commingled w/ the existing Rollover IRA?
Would your answer change depending on the $ amounts – e.g. if the Rollover IRA & Simple IRA each had $10,000, versus $500,000?
2. For someone converting a Rollover or Simple IRA to a Roth IRA in 2010, assume the conversion is done on Nov. 1st when the account is worth $100,000. At 12/31, the account is worth $110,000.
Which value is used in terms of the additional income that gets added for this taxpayer – the $100,000 or $110,000? Is the answer dependent on whether this is a partial of full Roth IRA conversion? If so, assume it’s both.
Thank you!
David
Permalink Submitted by Alan Spross on Mon, 2010-10-18 22:15
1) No need to separate the rollover IRAs from the qualified employer plans and the SIMPLE IRA sources. Both sources will have unlimited protection under the federal bankruptcy Act of 2005 as rollover IRAs. Therefore, the balances of these accounts does not matter and they can be combined in one rollover IRA.
2) The taxable income for the conversions is based solely on the amount at the time of conversion, ie 100k. If your Roth conversion gains another 10k prior to year end, the conversion income does not change. It just means that you are probably less likely to recharacterize the conversion than if you had a 10k loss instead of a gain. For partial conversions, you are also taxed just on the amount converted. If you converted half (50k on 11/1), and the other 50k gained 5k and you then converted the rest of it, then your taxable income would be 50k plus 55k = 105k.
Also, remember that unless you opt out, all conversions done in 2010 will be reported equally in 2011 and 2012 for taxable income. You would report the conversion on a 2010 8606 form but the taxable income would be deferred to 2011 and 2012.