Inherited IRA question
I have a client who recently passed away at age 76 and left his IRA to his 4 children as equal beneficiaries. One of the children has an existing IRA and would like to roll his inherited portion into his existing IRA. From what I have read, it seems like he cannot roll the proceeds into an existing IRA, but must maintain an inherited IRA account with the appropriate titling (ex: Client’s Name, Deceased 08/14/2012, fbo Beneficiary’s Name). However, I’m not sure if the material I am reading is up to date, so I thought I would double check.
Also, am I correct in understanding that if my client has NOT taken his 2012 RMD, the kids will need to take his full RMD this year, and will be able to recalculate the RMD based on their own ages in 2013 and beyond?
Thanks so much!
Kyle
Permalink Submitted by Denise Appleby on Wed, 2012-09-12 20:36
[quote=”[email protected]“]I have a client who recently passed away at age 76 and left his IRA to his 4 children as equal beneficiaries. One of the children has an existing IRA and would like to roll his inherited portion into his existing IRA. From what I have read, it seems like he cannot roll the proceeds into an existing IRA, but must maintain an inherited IRA account with the appropriate titling (ex: Client’s Name, Deceased 08/14/2012, fbo Beneficiary’s Name). However, I’m not sure if the material I am reading is up to date, so I thought I would double check.
Also, am I correct in understanding that if my client has NOT taken his 2012 RMD, the kids will need to take his full RMD this year, and will be able to recalculate the RMD based on their own ages in 2013 and beyond?
Thanks so much!
Kyle[/quote]
Kyle,
What you read is correct. A non-spouse beneficiary cannot move inherited IRA assets into his/her own IRA.
Your understand of the RMD rule for the year of death is correct as well. The RMD for the year of death must be taken by the beneficiaries ( if not taken by the decedent), and must be calculated as is the decedent lived to the end of the year. RMDs for next year and after can be taken over the life expectancy of the beneficiaries. But see http://www.retirementdictionary.com/info-bytes/deadline-establishing-sep…
Permalink Submitted by Kyle Bigler on Wed, 2012-09-12 22:14
Thanks Denise! Greatly appreciated.
Permalink Submitted by Alan Spross on Wed, 2012-09-12 23:04
I would caution each of the beneficiaries that they can’t do rollovers of any kind. This is the most frequent and costly make people make and IRA custodians often fail to warn them. Funds can only be moved to another custodian by direct transfer. So if any of them requests a check made out to them, they will have an irrevocable taxable distribution. They could try to get the custodian to rescind the check, but they rarely will do that unless it was 100% their error.
Also, note that the client’s unsatisfied RMD for 2012 can be taken by any beneficiary. Sometimes there is one beneficiary that simply wants to cash out their account and if so, that would totally satisfy the client’s 2012 RMD and the others would not have to share in that RMD. Of course, there must be some coordination between beneficiaries on what they will do to make sure that the 2012 RMD is completed. After 2012, they each must satisfy their own RMD for their separate accounts.
Note that if one of the beneficiaries improperly transferred their share into a NEW owned IRA with no distribution taking place, the registration on that account can be reconstructed. However, if they transferred it into an existing owned IRA account, then there is no solution. They would have a taxable distribution and an excess contribution to make.