Possible to transfer a Traditional IRA (no named beneficiary) to Inherited IRA?

Submitted by Linh Nguyen on Mon, 2018-03-26 04:17

My brother had a Traditional IRA account. He did not name any beneficiary before passing away unexpectedly. The IRA custodian now said the full lump-sum must be distributed to the estate. I believe that will subject the distribution to a (much) higher tax rate.

We are going through probate. My father is the sole beneficiary of the estate.
Can we establish a properly titled inherited IRA (for example: John Smith Jr., deceased, IRA for the benefit of John Smith Sr.) then transfer the fund as a trustee-to-trustee transfer, from the original account to the inherited account? Once that is done, the distribution from the inherited IRA would be taxed at my father’s tax rate which is much lower.

Thank you.



Submitted by Alan - IRA critic on Mon, 2018-03-26 04:40

  • Check the beneficiary clause in the IRA agreement to determine if this required lump sum is specified if the estate inherits the IRA, and such a provision might be linked to deaths prior to the RBD. If not, I would resist the lump sum distribution and the executor should attempt to assign the IRA to the father. As you can see, IRA custodians don’t much like maintaining an estate IRA and for that reason it may also be difficult to find another IRA custodian to accept a transfer under there circumstances. If such a custodian can be located, the current custodian may be satisfied to be rid of the inherited IRA by transfer instead of distribution. 
  • Note that even if the LSD cannot be avoided, the estate can pass the IRA distribution through to your father on a K 1 and the distribution would be taxed at his personal rate on his 1040. Of course, he would still have to deal with the income lumped into a single tax year which could increase his rate as well.

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