entity beneficiary of IRA- withdrawing balance
we have a deceased client that named a charity as a beneficiary of the IRA account- our firm is telling us that we must open a beneficiary IRA account to transfer the assets into to be able to liquidate for the beneficiary, rather than a retail account to move the assets into. this does not seem very logical to me and a completely unnecessary step. Can an entity 1) have an IRA, and 2) have a been IRA that you can do life expectancy calculations on? please provide some insight. thank you!
Permalink Submitted by Alan - IRA critic on Mon, 2014-07-07 17:10
The death of the IRA owner must be documented with a death certificate and other paperwork that permits the IRA custodian to pay death benefits to the beneficiary of the IRA. The distribution is reported under the SSN or TIN of the recipient. Most custodians create an inherited IRA rather than changing the TIN on the original IRA to prevent accounting issues. If the charitable beneficiary is included along with individual beneficiaries, it is critical that either the charity take a full distribution by 9/30 of the year following the year of owner’s death and that the individual beneficiaries create separate accounts so that they can use their own life expectancy for RMDs. Charities usually take their lump sum tax free distribution as soon as pratical. Otherwise, the charitable beneficiary can cause the individuals to lose their life expectancy stretch. Not sure if this addresses your entire question….
Permalink Submitted by Lisa Doherty on Mon, 2014-07-07 17:17
they would just take the distribution, right- they should not (and really could not) open an inherited IRA as our firm wants us to do- right? that is my real question
Permalink Submitted by Lisa Doherty on Mon, 2014-07-07 17:20
to clarify, our firm wants the entity to set up an inherited IRA to claim the funds- I don’t think we can do this. we should be able to just do a death distribution to them as the beneficary. right?
Permalink Submitted by Alan - IRA critic on Mon, 2014-07-07 19:37
It can be done either way with respect to the IRS. The institution determines which method better suits their processing platform. I think most would set up the inherited IRA account for the charity. With a separate inherited IRA there is only one 1099R per account whereas if the original account was maintained there would be a 1099R for owner distributions before death and another for death benefits.