inherited ira
I have a client who inherited an IRA from his aunt in 2014. I’m in the process of opening an account with a new custodian titled as an inherited IRA. The current custodian mailed a check directly to my office payable to the new custodian F/B/O my client and stated that it is coded as a direct rollover. Please note that the new custodian did not send any transfer paperwork or letter of acceptance to the current custodian. The current custodian only asked how to make the check payable which we told them via email. I have a couple of conerns. First, does it matter that the current custodian never established an inherited IRA for my client prior to distributing the funds? Second, will this be considered a rollover and therefore, not taxable, just reportable? Thank you.
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Permalink Submitted by Alan - IRA critic on Fri, 2014-09-26 20:14
This will be a non reportable direct transfer and therefore OK. There should be no 1099R and therefore no problem. It is not a rollover because a non spouse inherited IRA cannot be rolled over. The current custodian should have referred to this as a direct transfer, not a direct rollover. Direct rollovers only occur with an employer plan on one end and those are reportable. The custodian actually did a direct transfer, just used the wrong term to describe it.
Permalink Submitted by Robert Ervolina on Mon, 2014-09-29 17:40
Thank you