Nonspouse Beneficiary of IRA
I’m named as a beneficiary of my mother’s IRA. I haven’t been given much information about the IRA from the executor. My mother was in her 80s, so she had been taking distributions. I’m trying to determine if what I can do with the funds and avoid penalty and taxes. I am 44 years old. I’ve read alot of information on the internet, which really hasn’t clarified things for me. I’ve believe that if I put the funds into an inherited IRA in my name, I will have to continue taking distributions to avoid penalty. If this is correct, will I be taxed on those distributions?
Thanks in advance for any help!
Permalink Submitted by mk foss on Fri, 2013-04-05 04:12
A beneficiary must start taking distribution in the year after the death of the IRA owner. The IRA is transferred to an inherited IRA in the beneficiary’s name and his/her life expectancy is determined from the IRS singl life table and divided into the prior year-end balance of the IRA. Each subsequent year the divisor is reduced by 1.0. The distributions are taxable but there is no 10% penalty regardless of the age of the beneficiary. If the owner did not take her distribution in the year of death, the beneficiary may need to take it to avoid a 50% penalty.
Permalink Submitted by Alan - IRA critic on Fri, 2013-04-05 04:15
As long as you were directly named as beneficiary, the executor has no authority over the IRA and it is not subject to probate. The executor should only provide you information as a coordinator for the estate. You should set up an inherited IRA in your name and the registration will include your mother’s name as the decedent AND yours as the beneficiary. Your beneficiary RMDs start in the year following the year of death and you need to report them on your tax return. They are fully taxable unless your mother has non deductible contributions in the IRS evidenced by Form 8606 on her recent tax returns. You are also responsible for taking your mother’s RMD for the year of death if she did not complete it. This is also reported on your tax return. Your own RMDs will be less based on your age as of 12/31 of the year following the year of her death. You get the divisor from Table I (single life table) for that year, and for each year thereafter you reduce that divisor by 1.0. Be sure to name your own successor beneficiary on the account ASAP. Finally, the most important pitfall is that you can move the account to another custodian if you wish, but ONLY by direct trustee transfer. Do not accept a distribution (check made out to you) since you cannot roll it over and it will be irrevocably taxable. The only penalty you would have is for failing to take your RMDs on time.
Permalink Submitted by Melissa Dirks on Fri, 2013-04-05 12:51
Thank you both so much for the detailed information – I truly appreciate it!