Disclaimed IRA Question
A woman passed away about 4 years ago and she was a participant in a 403(b) plan with her employer. Her husband was the primary beneficiary and has agreed to disclaim the money so their two children can receive it. A local broker wants to move the money into Traditional IRA for the daughters rather than Inherited IRA’s. My thought is that it would be best if the children received the money in Inherited IRA’s so they could have access to the funds at anytime without penalty rather than it going to a Traditional IRA…which I am not convinced the Traditional IRA is the right approach. I would appreciate some guidance.
Permalink Submitted by Jose Morales on Thu, 2011-04-28 17:25
How old was the woman when she passed away? Did the husband disclaim his interest in the funds immediately? If the daughters can be the next beneficiaries in line, does the broker want to take the yearly distributions to the daughters and fund new IRAs for them? Do the daughter’s have earned income that will cover their contribution amounts? Or does the broker believe that once the daughters are the beneficiaries that they can simply take their portion of the woman’s 403b and open their own IRAs with the entire amount?
Permalink Submitted by Bryan Weiss on Thu, 2011-04-28 17:40
The woman was about 35 when she passed away. The husband did nothing with the account since his wife passed away until recently. The account is still in the deceased name at the employer 403(b) plan and no distributions have been made to anyone since she died. The parents of the deceased worked with an attorney and the husband to disclaim the funds within the last week or so. The children of the deceased are high school and college age with no earned income. The broker wants to move the two daughters portions entirely into their own IRA’s. The dollar amount for each daughter is about $5,000.
Permalink Submitted by Alan Spross on Thu, 2011-04-28 18:16
There is a big problem here. Note the 9 month time limit in Sec 2518:
http://www.taxalmanac.org/index.php/Internal_Revenue_Code:Sec._2518._Dis…
And even if the disclaimer was done on time, the children could never own the IRA, it would have to be an inherited IRA with immediate RMDs. Perhaps they need to come up with another plan. They might have to transfer to an inherited IRA for the husband from which he could take penalty free distributions and use that money to fund TIRA or Roth IRA contributions for the daughters once they have earned income.
Permalink Submitted by Bryan Weiss on Thu, 2011-04-28 18:38
Since the husband has recently disclaimed his interest in the funds, can the money be transferred directly inherited IRA’s for the children with immediate RMD’s? The husband (father of the children) has very little to do with his daughters therefore the grandparents are the guardians of the girls. Getting the husband/father to cooperate is very difficult.
Permalink Submitted by Jose Morales on Thu, 2011-04-28 18:54
[quote=”[email protected]“]Since the husband has recently disclaimed his interest in the funds, can the money be transferred directly inherited IRA’s for the children with immediate RMD’s? The husband (father of the children) has very little to do with his daughters therefore the grandparents are the guardians of the girls. Getting the husband/father to cooperate is very difficult.[/quote]
The problem here is that the husband had only 9 months after the death of his spouse to disclaim the funds. He is the beneficiary now, and cannot disclaim.