Estate Beneficiary of IRA – Options for Beneficiaries
Individual, age 85, died and his estate is beneficiary of his IRA which has a balance of $900,000. Is it possible for the estate to transfer the IRA directly to individual inherited IRA’s for each of the beneficiaries? If not is there other options to avoid having $900,000 taxable income on the fiduciary income tax return?
Permalink Submitted by Alan - IRA critic on Tue, 2025-06-03 10:07
Yes. The IRS has long recognized that the executor of the estate can assign the inherited IRA out of the estate to the beneficiaries of the estate, who can then each manage their own inherited IRAs and name their own beneficiaries. This will not change the RMD calculation though and each beneficiary will have to continue to use the decedent’s remaining LE (8.1 for 2025) for annual RMDs until the inherited IRAs are drained. The pitfall is that there are still some IRA custodians who will not honor an assignment request from the executor, and if they cannot be convinced the only option is to transfer the estate IRA to another IRA custodian that will accept assignment.
If the custodian cooperates, there is no need for the estate to take any distributions. While the beneficiaries would be jointly responsible for completing the decedent’s year of death RMD if the decedent had not done so, that year of death RMD can be taken in any combination of the beneficiaries and will be taxable to the recipients. Starting in 2026 they would all have to use a divisor of 7.1 for their beneficiary RMDs but can take more if they wish.
These rules were not changed by the Secure Act.