What do I know from IRA titling, if anything?

Submitted by Susan Radke-Sproull on Fri, 2023-03-10 23:13

Individual has:

1. An IRA inherited from her husband for which she chose the spousal option to take as her IRA. It is titled Contributory IRA. Okay, so it’s a Traditional IRA and it’s not a Rollover or Roth IRA, but what else does that titling tell us? Does it say anything about the tax basis of the IRA, or could it be a combination of pre-tax and after-tax contributions and she’d have to hope the custodian tracked the details when the inheritance was taken? And, by the way, is the fact that it was an inherited IRA still associated with this IRA in any way or does the fact that she took it as hers mean that the inheritance link is not maintained (like it is for a Beneficiary IRA)?

2. An IRA in her name from the outset. It is titled simply as a Traditional IRA and not as a Contributory IRA. She contributed to this IRA just as her husband contributed to #1, above. Does the different titling just reflect the choices of the different custodians, or does the difference in titling tell us anything? Would there be any reason not to combine this with #1?

3. A Beneficiary IRA from her husband for which she was not the named beneficiary so the direct beneficiary was the estate and the executor directed that it be titled to her. My reading on this forum says that she can now convert that Beneficiary IRA to an IRA in her name since it was from her husband that she inherited it and the IRS will honor that inheritance through the estate. Following from above, is there any particular way she should specify that this IRA is titled? Once accomplished, is there any reason not to combine it with #1 and/or #2 above?

3. An IRA rolled over from her inherited 401k titled as a, ahem, Rollover IRA. Other threads in this forum provided very useful guidance on why it might be a good idea to keep this Rollover IRA separate from the other IRAs, so I guess I have no questions here unless it’s useful to use this IRA as a comparison when answering the questions about the other three IRAs.

A million thanks.



Submitted by Alan - IRA critic on Sat, 2023-03-11 00:20

  1. Custodians are very sloppy about adding descriptive terms to IRAs such as “rollover” or “contributary”.  Often they are not accurate and there is no consistency between custodians regarding use of these terms. Contributary is often used to describe any IRA that is not a rollover IRA, but at the end of the day these are just IRAs. A true rollover IRA has been funded exclusively by a rollover from a qualified plan. The old term for this was a “conduit” IRA because there was a time that only a conduit IRA could be rolled back to a qualified plan. In this case, the SS owns the IRA and it no longer has any inherited IRA characteristics. Finally, those two terms are not affected by whether the IRA contains non deductible or after tax contributions or not. 
  2. The only reason not to combine these IRAs would be if the SS actually has a rollover IRA funded from a qualified plan, and may want to roll it back into her current plan if she is still working or may return to work. Otherwise, they can be combined, with or without a label for the IRA.
  3. No reason not to combine once the IRA was assigned out of the estate to the SS spouse, and the SS then elected to assume ownership. The IRA is in all respects an owned IRA at that point, and can be combined with any other IRAs she may own. If there was any IRA basis in the inherited IRA, it becomes her basis and is added to any existing basis she might have had. Form 8606 should be filed to update the acquired basis on line 2. Only good reason to keep the IRAs separate would be if she wants to name different beneficiaries for them, or if she wants to maintain an IRA annuity, which must be a separate IRA account held by an insurance company. 
  4. There are a few states that provide limited IRA creditor protection leaving the IRA owner protected only under the Federal Bankruptcy Act of 2005. In such a state, a rollover IRA (that is actually a rollover IRA, not just labeled as such) has unlimited dollar creditor protection in bankrupcty, as opposed to around 1.5mm for non rollover IRA accounts.


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