Inherited IRA, no beneficiary, court order
Father passed away in 2008 at age 50, had Traditional IRA with no designated beneficiary. He had only 1 heir, a minor daughter. Very small estate, but because property in different states, bank accounts in different states, it took 3 years to settle. Estate was settle on May 13, 2011. The judge signed a court order stating the Executrix is to roll over the funds in the account into a Custodial Traditional Beneficiary IRA, with xxx as guardian, beneficiary of Fathers Name, IRA. In addition, the court order states distributions will shall be in accordance with Internal Revenue Services required minimum distributions for a non spouse beneficiary.
Is she able to spread out these distributions over her lifetime or must she use the 5 year rule?
Permalink Submitted by Alan Spross on Fri, 2011-06-03 20:53
The 5 year rule applies, because the estate was the actual beneficiary. In order to use their life expectancy, the child would have had to be named as beneficiary on the IRA, either specifically or in a form such as “my children”.
In this case, since there were no RMDs required in 2009, the 5 year period does not end until 12/31/2014, so there is still 4 tax years over which the distributions can be spread. Also, if father had ever made non deductible contributions and filed an 8606, a portion of the distributions would be tax free. It would take some research to determine this, starting with father’s pre 2008 tax records.
The title on the inherited TIRA should include reference to the estate, such as “Lisa M, beneficiary of the estate of John M, deceased.”
Permalink Submitted by Bruce Steiner on Sun, 2011-06-05 01:21
I don’t know why the court would get involved (other than to appoint a guardian and to deal with the guardian’s accountings).
By selecting a fiscal year for the estate, you can spread the income over as 7 (8 in this case since 2009 doesn’t count) taxable years. You can also divide the income between the estate and the daughter.