Inherited IRA
I have a client age 70 about to pass away and has 3.6 million in IRA. Spouse is 55 and needs $140k income per year. Does all the money need to be an beneficiary IRA or can some just go to and spouse inherited IRA? I of course want to eliminate the 10% penalty because of her age. What’s the best way to structure this.
Permalink Submitted by Alan - IRA critic on Mon, 2015-03-16 16:59
The inherited IRA can be established and RMDs must begin for the year client would reach 70.5. If the surviving spouse wants to reduce those RMDs, then amounts after the RMD is satisfied can be rolled into spouse’s own IRA for which there are no RMDs until age 70.5. Transfers to owned IRA can be done at anytime, but once in an owned IRA the funds cannot be returned to inherited IRA status. At 59.5, the entire inherited IRA should be rolled over into own IRA.
Permalink Submitted by Danny Harlow on Mon, 2015-03-16 19:04
If there is a need of income greater than the RMD divisor is that possible without 10% penalty. Example, she is 55 and the divisor is 29.6 or $33,783. If she inherits 3.6 the RMD is $121,621, correct? What if she needs $140,000? Can she take the excess without 10% penalty?
Permalink Submitted by Danny Harlow on Mon, 2015-03-16 19:05
If there is a need of income greater than the RMD divisor is that possible without 10% penalty. Example, she is 55 and the divisor is 29.6 or $33,783. If she inherits 3.6 the RMD is $121,621, correct? What if she needs $140,000? Can she take the excess without 10% penalty?
Permalink Submitted by Jose Morales on Mon, 2015-03-16 20:21
There is no penalty as long as she is taking it from the portion held in an inherited IRA, as opposed to the funds moved into an IRA in her own name.
Permalink Submitted by Sheldon J Donner on Tue, 2015-03-17 16:28
An inherited IRA is owned by a surviving spouse. She had monies directly rolled over to her IRA. Same trustee. The Amount Distributed box, 1, and Amount Taxable Box, 2a, are the same even though the funds were rolled over to the same Trustee. Box 7 is coded “4”. This doesn’t appear to be correct. Why would there be an amount in Box 2a?
Permalink Submitted by Jose Morales on Tue, 2015-03-17 16:35
When moving the funds from the inherited IRA to the spouses own IRA by rollover a 1099-R will be generated. The deposit of the funds into the spouse’s IRA should be coded as a rollover and identified as such on form 5498, which will not be provided until May. Since the IRA was staying at the same custodian they really could have done this as a non-reportable assumption of the IRA by the spouse, but it’s perfectly fine for the transaction to also be done as a distribution/rollover.