Beneficiaries of Spousal IRA
An account owner of an IRA assumed an IRA from her deceased spouse (the IRA was rolled into an IRA account for her and not set up as an inherited IRA) while in her 70’s several years ago. Now she (IRA owner) has recently passed (age 79) and her 3 children are the beneficiaries. Is it possible to simply set up 3 separate inherited IRA accounts for the children and distribute their shares to their respective accounts? Then the children take RMD’s based on each of their single life expectancies?
Permalink Submitted by Alan - IRA critic on Fri, 2013-12-20 00:01
Yes, that is what should be done. The separate inherited IRA accounts for each beneficiary should be established no later than 12/31/2014. The beneficiaries must complete the 2013 RMD of their mother, and can do that equally or in any combination between the 3. The year of death RMD should be distributed by 12/31/2013, but if it is late, a penalty waiver can be requested using Form 5329. If either parent had basis in their IRA, the remaining basis is inherited in proportion for each beneficiary and recorded on Form 8606.
Permalink Submitted by Bryan Weiss on Fri, 2013-12-20 13:23
The decedant had already taken her 2013 RMD in full prior to death. Therefore we will focus on the 2014 RMD’s for the beneficiairies as you suggest. Thanks
Permalink Submitted by Bryan Weiss on Fri, 2014-02-21 16:47
In regards to the thread above, three (non-spouse) Inherited Beneficiary IRA’s are set up and it is understood that each beneficiary will be taking annual RMD’s beginning this year based on each of their Single Life Expectancies. The IRA owner/parent passed away in December 2013 and the 12/31/2013 IRA value was $300,000. For the initial beneficiary RMD calculation, is it correct to use $100,000 as the 12/31/2013 decendant IRA value for each Inherited Beneficiary IRA since the decedant IRA is split three ways amoung the beneficiaries?
Permalink Submitted by Alan - IRA critic on Fri, 2014-02-21 18:06
Yes, use 100k in this case for each beneficiary’s year end value. You might also check to see if there was any cost basis inherited as well. If either parent had IRA basis from non deductible contributions, the remaining portion would be inherited and would result in the RMDs being less than fully taxable. Look for Form 8606 on the decedent’s most recent tax returns. If there is any basis inherited it would also be split into 3 equal portions for the beneficiaries.
Permalink Submitted by Bryan Weiss on Fri, 2014-02-21 20:24
Thanks. That’s what I suspected.