How many time can an inherited IRA pass to beneficiaries?
We have an inherited IRA that has been passed via beneficiary two times and now looking at a third.
Mother – original owner of IRA. Already started RMD – Died
Son – received IRA from Mom as a beneficiary. Inherited IRA. Died
Wife of Son – received inherited IRA from husband (Son of Mother). Inherited IRA.
Now Wife has passed and has listed her four children as beneficiaries.
We have conflicting information on our options. One source says the children may also open inherited IRA’s and list beneficiaries. Another source says the Wife was the last to be able to receive the inherited IRA and should have taken the money out of the IRA. Because she didn’t, the beneficiaries she listed do not count and the assets must go to the (her) estate.
Help!
Permalink Submitted by Alan - IRA critic on Wed, 2016-04-13 20:01
There is no limit on the number of times an IRA may be inherited, but the the applicable distribution period does not change from that of the first (designated beneficiary). If the son elected the 5 year rule, the successors are also subject to that distribution date. If son elected life expectancy, then his life expectancy will apply to all those that follow. Your first source is correct, and the second is way off base. Any beneficiary can name their own successor beneficiary unless the IRA agreement specifically forbids it, and I have not heard of one that did. Apparently, the IRA custodian accepted new beneficiaries from the wife of son. Many IRA custodians do not like the hassle of dealing with multiple beneficiaries and certainly with successor beneficiaries that grow in number, so they try to push for a lump sum distribution to save on administrative costs. Their contract rarely allows them to do this, so the 4 children need to be firm and insist on the separate inherited IRA accounts unless the custodian’s IRA agreement allows them to refuse. Any even if that was allowed, a transfer to another custodian would be possible if they can find one to accept the transfer. As far as I am concerned, if IRA custodians only want to hold IRAs for living clients, they need to tell those clients in advance that their beneficiaries are going to meet resistance. Otherwise, people do pass and these custodians need to deal with it.