DECENDENT IRA DISTRIBUTED TO THE ESTATE
DECEDENT HAD TWO IRA’S AT DEATH THAT DID NOT HAVE BENEFICIARIES NAMED. THERE ARE 4 BENEFICIARIES OF THE ESTATE. FUNDS WERE DISTRIBUTED TO THE ESTATE ACCOUNT WITH 20% WITHHELD FOR FEDERAL TAXES. 1099-R’S WERE ISSUED TO THE ESTATE. FILED ON FORM 1041, I ASSUME. WHERE IS THE INCOME AND THE WITHHOLDING RECORDED ON THE RETURN? HOW ALLOCATED TO ON K-1’S TO BENEFICIARIES?
Permalink Submitted by Alan - IRA critic on Wed, 2025-02-12 19:19
If the estate is able to pass these distributions out to the estate beneficiaries, it would have been better to have had the executor assign the inherited IRA out of the estate to separate inherited IRAs for the beneficiaries. That would have avoided a total taxable distribution to the estate and the withholding issue. Unless the estate had final bills to pay withholding could have been avoided. It cannot be passed through to the beneficiaries even if the income can on a K1. The estate will have to file a 1041, receive a refund, close the estate and then refund the withholding to the beneficiaries.
The option to spread distributions over 5 or more years no longer applies because of the distribution. The 1099R income goes on line 8 of the 1041, then it will have to be determined which estate expenses to pay and how much to pass through to the beneficiaries on a K1.
Leaving a retirement plan to the estate is a mistake in most cases, particularly when the IRA is large.
Permalink Submitted by Marianne Chopp on Thu, 2025-02-13 15:29
Almost the same situation. The original owner dies with no beneficiaries. The court stepped in and allows two inherited IRAs to be created for the two beneficiaries. The original beneficiary is the estate so does the 5-year rule apply? Or the ghost rule? Or the 10-year rule? Thank you so much!
Marianne
Permalink Submitted by Alan - IRA critic on Thu, 2025-02-13 17:26
Usually the option to assign the IRA out of the estate to the estate beneficiaries is honored by the custodian, but if not I suppose the executor could file a court action.
The RMD requirements remain as if the estate was still the beneficiary, ie. the 5 year rule applies if the owner passed prior to RBD, and the remaining LE of the owner if they passed post RBD (ghost rule). Of course, either requirement is preferable to a total distribution, and many IRA custodians prefer to convince the estate to take a total distribution because they just don’t want to deal with inherited IRAs, perhaps for multiple estate beneficiaries.
In the situation you cited, each of the two beneficiaries would be subject to one of the above rules. Their ages are irrelevant, but they can still name their own successor beneficiaries on the inherited IRAs.
Permalink Submitted by Jane Early on Sun, 2025-02-23 15:41
I want to be sure I understand this concept: If the IRA funds are distributed to the estate, then the estate cannot distribute the funds to inherited IRAs for the benes. However, if the IRA itself is titled to the estate , then the IRA can be transferred to inherited IRAs for the benes if executor requests such of the custodian. The difference is in situation 1, the funds are actually paid out from the IRA. Is there a possibility that if the IRA funds are distributed to the estate, that the estate itself could transfer funds to inherited IRAs, or is this considered an unallowed rollover?