IRA estate distribution

Submitted by George Fossing on Wed, 2016-04-27 14:31

Have a man who called in. His father passed away (wife also passed away on the same day- both of natural causes!) and had an IRA (in a deferred annuity).
He had his wife as primary beneficiary and there was no contingent. Probate attorney said he has to cash in the IRA and cannot take it as an inherited and do the stretch.
Is this true? Any options available?
Thanks.
George



Submitted by Alan - IRA critic on Wed, 2016-04-27 18:20

Were the times of death documented, and which spouse passed first?  Who is the executor of the parent’s estates?  What were the ages of the parents? 

Submitted by George Fossing on Fri, 2016-05-06 14:48

Yes.  mother passed firstSon is executor for both estatesFather age 71mother age 60appreciate the help!

Submitted by Alan - IRA critic on Fri, 2016-05-06 16:25

  • The attorney might just be repeating what the insurance company told him. IRA custodian do not particularly like inherited IRAs unless they are large in value and have only one or two beneficiaries. However, IRS RMD Regs and PLRs addressing this clearly allow the executor to assign an inherited IRA out of the estate to the estate beneficiaries. The distribution period for those beneficiaries depends on whether the decedent passed prior to the RBD or after. It is possible for a 71 year old to have passed either prior or post RBD, which is 4/1 of the year following the year decedent reached 70.5. If decedent passed prior, the 5 year rule will apply; if after the RBD then the remaining life expectancy of the decedent is the distribution period and would be around 16 years.
  • SInce this is an IRA annuity, the contract could restrict these options. In that case, the inherited IRA could be transferred to a custodian that would accept an inherited IRA, probably in a non annuity, but that might take some legwork in locating one.
  • Note that assignment of the inherited IRA will allow the executor to close the estate. An inherited IRA is an asset of the estate and estate assets must be distributed to beneficiaries. Since a cash out is preferable to all but the estate beneficiaries who will have to pay the taxes on a lump sum distribution, it will probably take considerable push back to get the inherited IRA assigned, since the attorney and the insurance company are likely on the same page.

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