Estate Beneficiary – taxation
Good Afternoon
I have a few questions regarding the tax reporting upon an estate inherting an traditional IRA.
FACTS:
acct owner, 81, died in 2010
Estate named beneficiary
Will named 4 children beneficiaries
I am aware the beneficiaries are required to use the deceased life expectancy.
Question:
Please confirm 4 inherited IRA accounts should be established
Each beneficiary would recieve a 1099-R reporting their portion of RMD?
Currently distributions are being taken from a single inherited account (“estate”)
Beneficiaries are reporting income as K1 income
Which option is correct?
Any other guidance is appreciated.
Thank you,
Brian
Permalink Submitted by Alan Spross on Fri, 2012-06-29 17:01
Brian,
The estate should assign the IRA to each estate beneficiary and separate accounts created. This has no affect on the RMD as you indicated, but provides independent accounts for each beneficiary who can then invest the inherited IRA as they see fit, name their successor beneficiaries etc.
Once each inherited IRA is created under the SSN of the beneficiary, the 1099R will be issued as such.
This is much more efficient than keeping the estate open for many years and filing a 1041, coordinating investment choices etc.
Here is an article by Natalie Choate on this issue with some sample letters for executors to send to IRA custodians:
http://www.ataxplan.com/bulletinBoard/ira_providers.cfm