Roth Inherited Estate – lawsuit

Submitted by Bill Beauf on Sat, 2017-06-24 20:45

Background: father left a Roth Ira with no beneficiaries in 2014. Roth goes to estate per trustee. Prenup was in place for his wife, my step mother. Wife filed lawsuit against me, the administrator and the estate. This barred the RMD’s and renaming/transferring of the Roth. Lawsuit resolved in 2017.

As the administrator of the estate, I would now like to assign the beneficiaries
that are in the probate process per intestate and the trustee of the ROTH will let me do this. Next, distribute the Roth to the 3 beneficiaries, not a withdrawal. Then move the
3 inherited Roth’s to a more favorable trustee. Next, do the RMD’s for 2014, 2015 and 2016 per our life expectancies, file form 5329 with a waiver and letter due to lawsuit.

Is this all possible or have a missed any steps , laws or IRS regulations.

thank you,

Bill



Submitted by Bill Beauf on Sat, 2017-06-24 20:58

The Roth was created in 1987 and dad was 79 at his death,thanks,Bill

Submitted by Alan - IRA critic on Sat, 2017-06-24 21:58

Bill, when a Roth is left to an estate, the 5 year rule applies to RMDs regardless of the age of the decedent. As such, there are no annual RMDs on this inherited Roth, but the account must be drained no later than 12/31/2019 to avoid the 50% penalty. Therefore, no penalty has been incurred to date since annual RMDs do not apply, and no 5329 forms need to be filed. So there is still 2.5 years left to generate tax free earnings and since no taxes will be due for any distributions, unless a beneficiary needs the money, might as well not take distributions sooner than needed. You can still assign the Roth as separate inherited Roth IRAs for each beneficiary, and that will enable each beneficiary to control their own account till the end of 2019.

Submitted by Bill Beauf on Sun, 2017-06-25 04:44

I would like to do what these kids did from their inherited IRA that at forst went to the estate. http://www.retirementdictionary.com/articles/823/estate-beneficiary-ira-irs-allows-transfers-inherited-iras-beneficiaries-estatethanks,Bill

Submitted by David Mertz on Sun, 2017-06-25 15:21

In the case of PLR 201208039, the decedent passed after her Required Beginning Date for RMDs so RMDs to the beneficiaries were made from the inherited *traditional* IRA based on the life expectancy of the decedent.  However, a *Roth* IRA owner has no RBD, so in your case the decedent passed *before* his RBD.  Passing before the RBD means that the 5-year rule must be used as Alan described; distributions cannot be based on the life expectancy of the decedent.  In neither case can RMDs be based on the life expectancy of the beneficiaries.

Submitted by [email protected] on Mon, 2017-06-26 14:50

I am a little confused because I had thought that the 5 year rule was an “option” but not the default any more.  That the default was now life expectancy.  Is this a Roth only rule or have I been misunderstanding the 5 year rule for pre RBD? -m

Submitted by David Mertz on Mon, 2017-06-26 16:19

In this case there was no designated beneficiary, so the estate became the beneficiary per the IRA agreement (according to the trustee). Since an estate is not qualified to look-through treatment and has no life expectancy, because the owner passed prior to RBD only the 5-year rule applies.  See 2016 IRS Pub 590-B, page 10, Owner Died Before Required Beginning Date, Beneficiary not an individual.

Submitted by [email protected] on Mon, 2017-06-26 18:01

Perfect.  I forgot we were talking about an estate as bene.  That makes perfect sense. -m

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