Inherited IRA Issue
I have a prospective client who was widowed in 2015. She was the beneficiary of her husband’s IRA, but the current advisor moved the IRA into an inherited IRA instead of a spousal IRA in her name. It is unknown at this time if the appropriate RMD’s were taken in 2016 and 2017 (she’s checking her tax returns). Assuming they were, is there any way to get the inherited IRA back to her own IRA? Assuming no RMD’s have taken place, are we now subject to the 5 year rule? Also, if no RMD’s have taken place, can we move it back to her own IRA?
Thank you!
Permalink Submitted by Alan - IRA critic on Thu, 2018-08-30 23:09
She can elect to assume ownership of the inherited IRA anytime she wishes. If she was supposed to take beneficiary RMDs and did not, the inherited IRA automatically has defaulted into ownership status. A more complete response could be provided if you provide both the owner’s and surviving spouse’s age at the end of 2015.
Permalink Submitted by Josh Harmon on Fri, 2018-08-31 18:30
Husband was born on 11/7/1954, so he would have been 59. Wife was born on 10/1/1964, so she would have been 49. I did confirm that she took RMDs in 2016 and 2017. Does she have to put those back in, or can she just roll the remaining assets to an IRA in her name? Thanks!
Permalink Submitted by Bruce Steiner on Fri, 2018-08-31 19:07
There aren’t any RMDs until he would have reached 70 1/2. She may want to leave it in an inherited IRA until she reaches 59 1/2 to avoid the 10% penalty on pre-59 1/2 distributions.
Permalink Submitted by Alan - IRA critic on Fri, 2018-08-31 19:18
If those DOBs are correct, then the respective ages in 2015 would be 61 and 51. Her beneficiary RMDs would not start until 2025, so of course the inherited IRA would not have defaulted to ownership. She cannot return the distributions she took from the inherited IRA, but they at least would have been penalty free coming from an inherited account. She will not reach 59.5 until 4/1/2024 so she should keep the IRA as inherited until that date and then roll it over to her own IRA around that date. As the owner her RMDs would not start until 2035. Sounds like the current advisor made the correct decision, however may not have understood that she did not have to take any inherited IRA distributions for years. This all assumes that she is the sole beneficiary of the inherited IRA.