options for non-spousal inherited IRA annuity
I’ve recently inherited a Non-spousal IRA annuity from my mother that died when she was 70 yrs old and would like to know what my options are…I’ve been advised to roll over the money into a new beneficiary IRA mutual fund, however, I have been told about the 5 year rule and the tax consequences of such an action but are there any other options besides these?
Permalink Submitted by Alan - IRA critic on Fri, 2013-08-02 03:05
Sorry to hear of your loss. As long as you were named directly as beneficiary on the IRA annuity, you can take life expectancy RMDs whether your mother passed before or after her required beginning date. If there were any other beneficiaries you also need to create a separate inherited IRA account no later than 12/31 of the year following the year of your mother’s death. If your mother passed prior to her RBD, you could elect the 5 year rule instead of life expectancy, but that would rarely be a wise decision. Remember that you can only move the funds to a new custodian by direct trustee transfer, so be sure not to request a check made out to you, as that would result in a taxable distribution with no exceptions.
Permalink Submitted by Kelly Moncavage on Fri, 2013-08-02 09:28
Thank you for your quick response. How do I go about requesting the life expectancy RMD? Do I contact my CPA, that handles my yearly income tax prep, as well as the broker/company that has the IRA Annuity or is there someone else that I need to help with this transaction? This is all so new and any advice that you can give is greatly appreciated!!!
Permalink Submitted by Alan - IRA critic on Fri, 2013-08-02 17:54
You don’t have to notify anyone. You elect life expectancy RMDs by simply calculating the correct RMD and withdrawing at least that amount (you can take more anytime you wish, but not less) by the end of the year following the year of your mother’s death. If you want to change custodians by direct transfer, you can do so without first taking out your RMD. Calculating the RMD is simple and most IRA custodians will help you if you ask. Once you arrive at the first year RMD divisor based on your age attained by the end of that year, you will reduce that divisor by 1.0 for each year thereafter.
Permalink Submitted by Kelly Moncavage on Wed, 2013-08-07 06:57
I’ve been bombarded with all kinds of information as to how to invest this inherited non-spousal IRA and feel overwhelmed by the possibilities…I’ve been told that a 3 fund portfolio may be a good option and I may benefit from choosing the ETF’s from Vanguard {Total Stock, Total International Stock, and Total Bond Market} or possibly Market Index Funds from Fidelity {Spartan Total Market, Global ex US Index, and US Bond Index} and some advised that perhaps a Life Strategy/Target Retirement Mutual fund would be the way to go…it seems whatever choice I make there is some major fees involved with these transactions and I just want to make the right choice. Would it be best for me to speak with a representative from either Vnaguard or Fidelity or both to see which may be the best option for me or would you advise otherwise?
Permalink Submitted by Alan - IRA critic on Wed, 2013-08-07 19:35
I don’t see any reason for major fees here. The VG and Spartan funds are good, very low cost investments as long as you move the inherited IRA to the same firm. For example, if you want to use the VG 3 fund portfolio, then transfer the IRA to VG. Or if you want to use the Fidelity funds, go with them. Do not mix and match. The Life Strategy fund probably does have higher costs than the others. But the investment and firm you select should be based on your total asset allocation and fit well with it. When you talk to these firms they should ask how your other assets are invested so they do not suggest something you already have. Overall, you should be diversified with investments that react differently to market and economic conditions. You might have to pay an exit fee from the annuity carrier, but that is just a one time cost to move to investments with much lower costs from here on.
Permalink Submitted by Ed Mangan on Wed, 2013-08-07 20:53
my dad passed away. but at Fidelity he and I already had him moved into a regular trading account IRA.with that there are many choices. any mutual fund, very many ETFs and those usually are free stock trades throughfidelity or any stock you want. he use to be locked into only the fidelity mutual funds.hope this helps, it is nice to know you have choices……Ed PS. I plan to stretch it over my life and make sure you name your own beneficary to this new one