Beneficiary Question
I have a client whose mother died and named her as the sole primary beneficiary of her $300,000 IRA. The problem is that my client wants to split the IRA evenly between herself and her three siblings. She wants to pay minimum taxes on the $300,000 and ideally create four beneficiary IRAs – one for herself and one for each sibling. The mother’s will spells out that the estate will divided equally amongst the four children. According to Ed Slott’s book, it doesn’t look like the beneficiary IRAs would be possible in this situation. What can she do?
Permalink Submitted by mk foss on Wed, 2012-09-12 16:35
It’s not possible to do beneficiary IRAs for the siblings. She can take RMDs every year and aplit the after tax funds with the siblings.
Assume a withdrawal of $16,000 with a 25% tax rate. Her after tax amount is $12,000 and she could give $3,000 to each silbing. The $3,000 is less than the $13,000 annual exlusion so there would be no gift tax filings. As long as she takes the minimum, she should be able to keep her tax bracket low. If she’s tempted to distribute 3/4s of it right now, the income taxes would be hefty – but that’s another possibility. Take 3/4ths, pay the tax on that and give away the net. There would be a gift tax filing in that case, though.