Non-spouse beneficiary’s choice to make?
Must a non-spouse beneficiary who inherits a traditional IRA decide to either liquidate the inherited IRA account completely within five years OR take required minimum distributions? I read this in an article in a magazine dated November 2013. Is this accurate? Will my custodian (Vanguard) advise my beneficiaries of this Must Decision? Should I alert my beneficiaries of this on my instructions to them that I am preparing as part of my estate planning?
Permalink Submitted by Alan - IRA critic on Thu, 2015-03-05 23:21
The 5 year rule is only an option if the IRA owner passes PRIOR to his required beginning date. Since life expectancy is the default option in most all IRA agreements, even if the beneficiary misses an RMD, they can generally make up the shortfall and even get the penalty waived and then continue to take life expectancy RMDs. After inheriting, a beneficiary should submit a certified copy of the death certificate and other papers VG requires to set up separate inherited IRA accounts. They need to name their own beneficiaries on the inherited IRA and most important they need to know that they cannot take a distribution and roll it over. They can change custodians if they wish, but it must be done only by direct transfer. If a check is made out to them personally that amount is considered taxable and there is no available fix for that mistake. After your death they need to know the custodian (VG) and the IRA account number and phone number and VG will advise what paperwork they need to submit to set up separate inherited IRA accounts. Beneficiaries are also repsonsible for completing the year of death RMD for the decedent if that RMD was not completed.
Permalink Submitted by Tom Reiter on Fri, 2015-03-06 13:42
Thank you very much for your consice clarification. The mandatory choice would not apply in my case since I am presently 80 years of age. Tom