Account was opened as a bene ira instead of rolled into existing ira
Husband passed away at age 68, would have turned 70 1/2 in 2011. HIs wife was the beneficiary and instead of rolling the funds into a new traditional IRA in her name, an inherited IRA was set up for her and her husbands IRA was transferred into this account. She took a distribution in 2011 from the beneficiary IRA, no other distributions. She was 57 when she inherited his IRA.
What are the tax consequences? Is it beneficial to roll the beneficiary IRA into her traditional IRA?
Permalink Submitted by Alan - IRA critic on Thu, 2016-12-01 18:01
If she took a beneficiary distribution in 2011 that would have satisfied the 2011 RMD, then she would have defaulted to ownership of the inherited IRA at the end of 2012 since she failed to take a beneficiary RMD in 2012. Since she is still under 70.5 and would have no RMDs from her owned IRA, she should just roll this into her own IRA at this point. The title would then reflect the actual owned status of this IRA. Her RMDs will begin at 70.5 as the owner.
Permalink Submitted by Heidi Johnson Bixby on Sun, 2016-12-11 19:06
Similar to the above situation, husband dies at age 77 in 2012. Broker registers the IRA as an Inherited IRA for wife, age 78 in 2012. Because of this, distributions had been taken under the single life expectancy until now when the brokerage firm suggested and converted the IRA into wife’s own IRA in December 2016.Given the IRA was still under the Inherited registration on 12/31/15, she should take the higher distribution amount based on single life expectancy (roughly $85K RMD) or can she take it based on new Uniform Life Tables since it’s been converted (roughly $45K RMD). I’m thinking she has to take the distribution at the higher amount in 2016 because it was still under the Inherited IRA registration 12/31/15 but in 2017 she can take the distribution based on Uniform Life tables.Thoughts?
Permalink Submitted by Alan - IRA critic on Sun, 2016-12-11 20:36
The act of re titling the IRA as owned by the wife results in the election of ownership. In the year of election (as long such election is not done in the year of owner’s death) this allows the wife to be treated as if she owned the IRA the entire year. As such she would use the Uniform Table for her 2016 RMD and the 12/31/2015 balance. The title as inherited status on that date is immaterial. Ref IRS Reg. 1.408-8, QA 5.