Estate named as beneficiary of IRA and Roth IRA
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 believe these IRAs must now go through probate, can the court appoint the dictated trust accounts as beneficiary 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, thus has to remain opened until full 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 21:22
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. Otherwise, the earnings in the Roth do not become tax free until the 5 year holding period is completed, starting with the year the owner first contributed.