Inherited IRA change of registration
Once a beneficiary sets up an account in their own name as an Inherited IRA are they then allowed to re-register the account into someone else’s name? My client is asking about not taking the monies left to her from her father’s IRA but instead passing it along to her children so that the RMD payout is less and last longer.
Thanks.
Permalink Submitted by Jose Morales on Mon, 2016-09-12 16:31
If the children were the contingent beneficiaries your client should have disclaimed their status as the primary IRA beneficiary so that the children would then take her place prior to taking the funds and placing them in an inherited IRA.
Permalink Submitted by Alan - IRA critic on Mon, 2016-09-12 17:17
urusei – do you feel there is a distinction between a situation where the original beneficiary has the current account re titled vs when the current account is retitled and then transferred to a new beneficiary account? RR 2005-36 https://www.irs.gov/irb/2005-26_IRB/ar11.html holds that the original beneficiary can distribute the year of death RMD of the decedent and a disclaimer is still qualified. This could not occur without the custodian re titling the account enabling the beneficiary to take the year of death RMD distribution. Consensus is that re titling an account does not constitute acceptance of the disclaimed property unless an actual distribution (other than year of death RMD) takes place. There are various IRS Regs cited in the attached RR that confirm that. However, what if the original beneficiary first transfers the IRA to a new beneficiary IRA with the same custodian or to a new custodian before filing the disclaimer?
Permalink Submitted by Jose Morales on Mon, 2016-09-12 19:52
This becomes very tricky when there are system limitations with regards to how distributions of any kind are processed. I’ve worked with inadequeate systems that only allowed for a distribution to be reported correctly when the funds come from an account established in the name of and under the SSN of the person actually receiving the funds. Under these restrictions any beneficiary distribution required opening a new account for the beneficiary to process even a partial distribution, as simply retitling the account was not an option. I’ve always been conservative and only transferred the amount to be distributed to the beneficiary to the new account (such as the deceased’s current RMD) until such time as the beneficiary was certain they wished to accept the deceased’s funds entirely. I don’t think most major financial institutions are this cautious, but primarily because they lack staff processing these types of transactions with the level of understanding which would make them aware of any potential issues that may arise from moving all of the funds into a new inherited IRA for the currently named beneficiary right away. Personally, I think it’s unfair to hold that the named beneficiary has accepted receipt of funds when they are moved into a new inherited IRA due to the IRA Custodian’s system requirements or ignorance of the consequences but I can’t think of a written determination that covers this situation. However, if a benefciary provides direction to move the funds into an inherited IRA in their name and then wishes to disclaim I would probably ask for a written determination before taking any action. In the OP’s case I don’t think we even get this far into the discussion if her children weren’t even named as contingent beneficiaries, but if by chance they were and she has already moved the funds into her own inherited IRA I wouldn’t expect the Custodian to process the request without the client themselves providing at least one written determination covering a similar set of circumstances.
Permalink Submitted by Larry Moran on Mon, 2016-09-12 20:58
The beneficiary’s children are not listed as contingents. In addition the beneficiary herself is not the only primary. She is 25% recipient along with her three siblings.
Permalink Submitted by Alan - IRA critic on Mon, 2016-09-12 23:39
Then under most IRA beneficiary clauses, even if a disclaimer were possible the beneficiary’s share would not go to the children, it would go to each of the other 3 beneficiaries equally. With a qualified disclaimer the funds cannot be re directed to some chosen person, it would pass under the terms of the IRA agreement as if the disclaimant pre deceased the IRA owner.