Transferring funds into inherited IRA

Submitted by Jeff Kunin on Fri, 2017-06-23 02:33

My late sister has an IRA, on which I am the sole beneficiary, at a bank which does not offer inherited IRAs. I want to transfer the funds to a brokerage firm which does permit inherited IRAs. The ONLY way the bank will transfer the funds is by means of a check. (I was informed that the check can be made payable as: ‘my name’ inherited IRA beneficiary of ‘sister’s name’.) The bank has assured me that the transaction will be coded as a trustee transfer. My question is: does the issuance of any check automatically invalidate the transfer into my inherited IRA at the brokerage firm? If so, what should I do? Thanks.



Submitted by Alan - IRA critic on Fri, 2017-06-23 03:07

I don’t know why people maintain IRAs with custodians like this. Nonetheless, the only way you can move the money without a taxable distribution is to have the check made out to the IRA custodian you wish FBO (you) inherited IRA. That qualifies as a direct transfer and is not to be reported on a 1099R. The key is that no 1099R is to be issued as that would denote a distribution, not a direct trustee transfer. The way you described the payee above would constitute a distribution since you could cash the check since it was not made payable to the new inherited IRA custodian.  

Submitted by Jose Morales on Tue, 2017-06-27 00:32

Step one is to find the custodian that will open an Inherited IRA for you.  They may want some form of confirmation that you are the beneficiary of the account in question, but most likely not.  You want this new custodian to be the one to request the funds from the current IRA custodian.  They should have forms specifically for transferring an inherited IRA and this form will clearly spell out how the receiving custodian wishes the check to be made payable.  You do not want to request the withdrawal of the funds directly yourself, regardless of how the check is payable, as there is a high likelihood you will end up with a reportable distribution due to the lack of knowledge on the part of the custodian currently holding the funds.

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