How long do I have to take an Inherited IRA?

Submitted by William Laing on Wed, 2020-09-02 18:12

Situation:

My brother passed and left his IRA to multiple beneficiaries, one is his spouse. I am being told I have to open an inherited IRA. I understand and have no problem. But,

1. How much time do I have to open the inherited IRA? Is it the 10-year window or the Dec 31 of the year following death? The money is earning a good secure interest rate (8% corporate bond, non-callable) and I do not want to lose it.

2. Is the spouse entitled to the spousal IRA, if there are multiple beneficiaries? My reading of the secure act is that the spouse is not entitled as it is not a spouse only beneficiary IRA.

Any help is appreciated.

Thank you,
Bill Laing



Submitted by Alan - IRA critic on Wed, 2020-09-02 18:47

  • The separate inherited IRA account rules still apply, although they have less effect on RMDs than before.  But even if your share is subject to the 10 year rule, you would still want to have control of your own account and be able to name your own successor beneficiary, and in most cases be able to make investment changes. 
  • Establishing separate accounts is more critical to the eligible designated beneficiaries (EDBs) who could otherwise still use a life expectancy stretch.  A surviving spouse is one of those, as are other individuals who are not more than 10 years younger than your brother, any minor children of your brother, or disabled beneficiaries.  If separate accounts are not established for these EDBs by 12/31 of the year following the year of his death, the LE RMDs of all these EDBs will be based on the oldest of them instead of each EDB’s individual age.  Non EDBs would still be subject to the 10 year rule so are not affected as much as EDBs.
  • The surviving spouse can still at anytime do the spousal rollover to her own IRA as before, so her options are more open ended. However, she could not default to ownership status by failing to take a beneficiary RMD, so would still have a late RMD to deal with if she did nothing.
  • Usually, each beneficiary establishing a separate inherited IRA account would receive a pro rated share of the current bond, and interest payments would continue. Are you being told this cannot be done for this holding?

Submitted by William Laing on Wed, 2020-09-02 19:12

Thank you for the response and good information. The only beneficiaries are his spouse, me, a friend, and my children. All my children are under 59.5, the spouse is 58, plus one friend 73, and I am 63. My brother was 74. There are two EDBs. It is critical for the spouse and friend to get it done by 12/31/2021. Can the account be liquidated and dispersed without all beneficiaries submitting an IRA distribution form? The advisor for the IRA holder is saying they may or may not convert the bond. It is up to the company’s lawyers. One beneficiary has opted to move their funds to another company. Does that mean all the shares have to sold? I really appreciate the help with this. It is a confusing change. Bill Laing  

Submitted by Alan - IRA critic on Wed, 2020-09-02 20:14

  • Given submission of the death cert and required info for the beneficiaries, those beneficiaries can have their interest transferred to separate inherited IRA accounts unless the bond issuer is blocking the transfer for some reason that is unrelated to the Secure Act. Perhaps owner’s death has triggered some call feature. The IRA custodian is responsible for determining from the bond issuer whether these partial transfers can be done in kind  as usually is the case, or whether the bond will have to be split into increments that require non round units to be liquidated to cash. 
  • Normally, separate inherited accounts and transfers can be done individually, but occasionally an IRA custodian will want to process all transfers at the same time which is a problem if even one beneficiary is procrastinating. That could also complicate the process. Whether a beneficiary wants to transfer their inherited IRA out to another custodian or retain their interest in a new inherited IRA at the same custodian is usually not an issue.

Submitted by William Laing on Wed, 2020-09-02 20:20

This helps in making some decisions. Just as an aside the advisor told my children they would all have to pay the 10% penalty for being under 59.5, yet everywhere I read that penalty is waived for the inherited IRA. So much misinformation out there. Thank you. Bill 

Submitted by Alan - IRA critic on Wed, 2020-09-02 21:40

You are correct. Makes other statements made by this advisor suspect. No penalty on inherited IRA accounts is pretty basic info.

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