Inherited to Inherited IRA
Can someone help with this question?
We have a client who had money invested in an IRA, the client died, the client’s son was the beneficiary. The money was rolled into an Inherited IRA. The son died a few years later. The son’s spouse was named the beneficiary. The money was rolled into her Inherited IRA.
It is always been my understanding that once the original IRA (father) monies had rolled into an Inherited IRA (son) and then into another Inherited IRA (son’s spouse) that the son’s spouse would have to have the money paid out of the account over 5 years. The son’s spouse would not be able to take either the required distribution based upon the son’s life expectancy or her own life expectancy. She would have to have the money paid out over 5 years. We call this an Inherited Inherited IRA.
Can you clarify?
Permalink Submitted by Alan - IRA critic on Thu, 2016-09-08 19:51
This is not correct. A successor beneficiary would be subject to the same RMD schedule as the original designated beneficiary (son). The 5 year rule would only apply if the son elected the 5 year rule and the son could only elect the 5 year rule if the father passed prior to his required beginning date. Therefore, most likely the spouse of the son would just keep reducing the RMD divisor by 1.0 each year as the son was doing. Note that the usual title format for this successor beneficiary IRA is to show the name of the spouse of the son as beneficiary of the son. The father’s name can be dropped from the inherited IRA title. Also, a non spouse beneficiary cannot do a rollover to an inherited IRA, so any change of IRA custodians must be done by direct trustee transfer. These are not reported on Form 1099R.