5 Year Rule
The situation is as follows:
Son, aged 63, died in October of 2010 with the mother as the beneficary of his IRA;
Mother opened an Inherited IRA and elected to take the entire distribution under the 5 Year Rule
Mother subsequentlyt died in April 2011 before receiving any distribution under the 5 Year election
Daughter is the current beneficiary of this Inherited IRA ,which had passed from her brother to her mother and now to her.
Question #1 is whether the daughter is locked into taking the proceeds out over the 5 year period established when her mother inherited and elected the 5 year payout or can the daughter roll the proceeds into an inherited IRA and then make her own decision to take distributions over her life expectaty or under the 5 year rule?
Question #2 is related Q#1 but has to do with registration/titling of the acct as to whether the daughters beneficiary/inherited IRA account must be set up in the name of the original owner, the son/brother, or in the mother’s name, as a beneficiary/inherited IRA?
David Williams ID 4184
Permalink Submitted by Alan Spross on Fri, 2011-09-09 23:05
There are extremely few IRA agreements out there that require a formal election for distribution options by a beneficiary. Most agreements have adopted the IRS 2002 RMD Regs making life expectancy the default method.
Even though Mother passed prior to 9/30 of the year following son’s death, she is considered the designated beneficiary for RMD purposes. Lacking a throwback IRA agreement that makes the 5 year rule mandatory in certain cases, the sucessor beneficiary daughter should be able to take RMDs using the non recalculated single life expectancy of her mother. Since mother is probably in her 80s, the daughter will not get much of a stretch, but mother’s life expectancy is still longer than the 5 year rule. Daughter needs to take her first RMD by the end of this year, or she can also elect the 5 year rule.
With respect to registration, the IRA custodian’s platform may require a specific format. Lacking that requirement, the IRA should not be titled, “daughter, successor beneficiary of mother (deceased), beneficiary of owner (deceased)” using correct names of course.
Check the clause in the IRA agreement detailing requirements for owner’s death prior to the RBD before acting.