Estate IRA not allowed to be converted to inherited IRAs

Submitted by David Prey on Mon, 2020-07-06 18:37

Both JP Morgan and Charles Schwab are saying my wife (executor) can’t transfer the Estate IRA to inherited IRAs for the 2 beneficiaries (both are non-designated beneficiaries). The death occured 3/17/20. Both are saying the Estate IRA can only make distributions to the estate and then distribute to the beneficiaries. If this is not true is there anywhere in IRS documents/internet where this is stated? In case it makes a difference the Estate IRA was also an IRA transferred from a spouse but the deceased could not add any beneficiaries due to being mentally incapicated at the time of receiving the IRA.



Submitted by Bruce Steiner on Mon, 2020-07-06 21:02

  • The simplest solution is to move the IRA to a friendlier custodian and then do the transfers.
  • Of course, since that won’t change the payout period, the estate could maintain the IRA, collect it within the permissible period, and make distributions.  That would likely produce a better result since estates may use a fiscal years, and since estates may use administration expenses to offset income from the IRA.
  • Bruce Steiner

Submitted by Alan - IRA critic on Mon, 2020-07-06 23:31

  • Did decedent’s spouse pass prior to 2020?   Did surviving spouse have the account retitled as an inherited IRA or did they do a spousal rollover to their own IRA (with no designated beneficiary)? Could surviving spouse failed to have completed a beneficiary RMD for a year prior to 2020, meaning they would have technically be deemed to have elected ownership of the inherited IRA?  How old would surviving spouse have been at the end of 2020?  These facts determine what the distribution period is now for the estate/estate beneficiaries.
  • Once the distribution period that would have applied is known, you would know how many years of stretch is being sacrificed by these custodians refusing to cooperate with assignment of the inherited IRA.
  • It will probably be very difficult to find another custodian to cooperate with any assignment your wife attempts as executor given this IRA had already been inherited once.

Submitted by David Prey on Mon, 2020-07-06 23:51

The decedent’s spouse passed in 2017. The IRA was retitled in the surviving spouse’s name with no designated beneficiary due to being mentally incapacitated at the time of transfer (June 2017).  She would have been 81 at end of 2020.  The RMD was taken in 2019.  

Submitted by Alan - IRA critic on Tue, 2020-07-07 01:54

Looks like whether she defaulted to ownership or had it retitled as owner, or continued as beneficiary and took full beneficiary RMDs, her estate would have to drain the inherited IRA by 2029, so very little difference. I doubt that your wife wants to keep the estate open for many years to spread out distributions, so if the custodians could be convinced to accept assignment, she could close the estate soon and beneficiaries could control the distributions over the next 9 years. Otherwise, unless the balance is considerable, she would probably end up agreeing to the lump sum distribution the current custodian wants her to take so they could divest themselves of the inherited IRA. Since the IRA has already been inherited once, getting the custodian to accept assignment will be that much more difficult. Historically, these two firms have been willing to accept assignment, so perhaps being previously inherited has affected their decision.

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