Beneficiary of a beneficiary IRA using the new rules 2020
I have a client who passed away in Mar 2021 at age 68. Her mother aged 91 is the beneficiary of the IRA
We opened a bene IRA in the deceased’s name for the benefit of the mother. We will use the 10 year rule for the distribution of the assets
What happens if the mother passes before taking any money, say 5 years later and her son inherits the beneficiary IRA ???
What are the rules for the son to take out money?? A new 10 year time frame or is he stuck with the remaining 5 years of the original 10 years or something else??
Thanks
Stevan
Carson City NV
Permalink Submitted by Alan - IRA critic on Mon, 2021-06-07 20:23
There are no cases where a 10 year rule beneficiary passes and a new 10 year rule starts. So 5 years left in this case. Since client passed prior to RBD and mother is obviously not more than 10 years younger, mother could elect LE RMDs but due to her age this would drain the IRA in 4.9 years starting in 2022. Therefore, mother should elect the 10 year rule even though she is an EDB, and her son would have what is left of that 10 years upon mother’s death. Electing the 10 year rule also means that mother would not have to take any distributions for any of the first 9 years.
Permalink Submitted by Stevan Lyon on Wed, 2021-06-09 22:19
Thanks for the insight
Permalink Submitted by Michael Franklin on Thu, 2021-06-10 18:55
I am working with an executor of a will and the deceased named his estate as his IRA and Roth IRA beneficiary, and not to the Trust dictated in his will. Here are my questions:1. I beleive these IRAs must now go through probate, can the court appoint the dictated trust accounts as beneficuary of the IRAs?2. Even if #1 above is done, I believe the IRAs are subject to the 5 year rule (the deceased was 53). Does the estate pay the taxes, tthus has to remain opened until dull distribution, at the estate tax rate?3. Is there penalty due because the deceased was younger than 59 1/2?4. Can the contributions to the Roth IRA be distributed without tax/penalty?A true pickle. Thank you
Permalink Submitted by Alan - IRA critic on Thu, 2021-06-10 21:19
Yes, the IRA assets will be subject to probate of the will, even if a pour over will sweeps these IRAs into the trust. If a pour over will was not executed, only the estate and not the trust will be the IRA beneficiary.
Correct, 5 year rule applies. The estate executor or trustee of the trust if a pour over will was executed can assign the IRAs to the beneficiaries of the will or trust if the trust so allows. Distributions are then made directly to the beneficiaries and taxed to the beneficiaries. Sometimes IRA custodians resist such assignment process. Even if the the trust receives IRA distributions, the taxable income can be passed through to beneficiaries and taxed to them if the trust permits.
There is no penalty on distributions from inherited IRAs regardless of when the owner passed.
The Roth IRA is qualified and fully tax free if the decedent first contributed to the Roth before 2017 assuming decedent passed this year.