Must a separate inherited IRA acct. be opened by the custodian before making any distributions or transfers to the beneficiary?
Is there a statutory or regulatory requirement for an IRA custodian to open a new inherited IRA account for a non-spouse beneficiary before making a lump sum distribution to the beneficiary or directly transferring the inherited IRA assets to a successor custodian immediately after the IRA owner’s death? Instead, is it permissible for the custodian to make the distribution or transfer directly from the deceased owner’s IRA account? The typical practice seems to be for a custodian to require all of the paperwork for a new account and to open the new account on the custodian’s system even where the new account will be closed right away, but I haven’t found any authority requiring that this be done.
Permalink Submitted by David Mertz on Mon, 2021-01-11 18:10
There is no statutory requirement to open an inherited IRA before making a distribution or transfer. However, it is standard practice to transfer the IRA to an inherited IRA titled as being for the benefit of the beneficiary so that the custodian can collect the necessary beneficiary information for reporting any distribution to the beneficiary or for transferring the account. The opening of the inherited IRA allows the custodian to record and associate information such as the beneficiary’s address and SSN needed for issuing Forms 1099-R or for ensuring that a transfer is completed properly, things that are done using the custodian’s automated or standardized processes. Deviating from the custodian’s automated or standardized processes can be perilous.