IRA beneficiary not yet 73
Client, 69, is a non-designated beneficiary of 93 years old deceased owner’s traditional IRA. Beneficiary already has a traditional IRA inherited from her deceased husband 20 years ago when he was younger than 70 1/2. Client’s share of the not yet received IRA is approximately 12k, and the client’s intention is to take the 12k out of the IRA within the next year.
Custodian is asking client to tell them whether she wants the 12k placed in a separate IRA or merged into her existing IRA. What would you suggest, and why? If the incoming IRA funds are merged with her existing IRA, should she be concerned about how/if the IRS will know that the future distribution(s) represent the emptying of the newly inherited IRA?
Permalink Submitted by Alan - IRA critic on Tue, 2024-09-10 12:42
Non designated beneficiary is an estate, trust, or charity, not an individual. Was she not named as the beneficiary for the 12k IRA? If she inherited two IRAs from husband 20 years ago and was the named beneficiary on both, did she take beneficiary RMDs every year? Note that if she missed a beneficiary RMD for even one year, she defaulted into ownership status for that inherited IRA. And if she inherited the 12k IRA at that same time, but has done nothing with it for 20 years, she would have similarly been treated as the owner of that IRA as well.
So if both IRAs are technically owned by default due to failing to take a beneficiary RMD at anytime, they can be combined at this time. RMDs from her owned IRAs do not begin until she reaches 73.
To be clear, if the 12k IRA has not distributed beneficiary RMDs for even one year, she now owns it and there are no RMDs due because she is not yet RMD age.
Please clarify the info if my interpretation does not reflect the actual facts for these two inherited IRAs.
Permalink Submitted by Bob Keller on Tue, 2024-09-10 17:31
Alan, obviously I failed to clearly explain the circumstances in my original post, so let me try again. More than 20 years ago when my client and her husband were in their forties, the died. Client was the named beneficiary of his traditional IRA which since shortly after his passing has been titled as her IRA. (Client has never had an IRA to which she’s contributed from her own earnings.) Neither the client nor her deceased husband ever took any distributions from the IRA as none was required nor needed.
Very recently the mother of the deceased husband died at age 93 while, of course, taking her annual RMDs from her traditional IRA. Client is one of the beneficiaries of MIL’s IRA and will receive about 12k which she intends to empty within the next year. My error in my initial message is that I should have referred to the client as a nonspouse designated beneficiary.
This paragraph is identical to the final paragraph in my original query: Custodian is asking client to tell them whether she wants the 12k placed in a separate IRA or merged into her existing IRA. What would you suggest, and why? If the incoming IRA funds are merged with her existing IRA, should she be concerned about how/if the IRS will know that the future distribution(s) represent the emptying of the newly inherited IRA?
Permalink Submitted by Alan - IRA critic on Tue, 2024-09-10 18:00
OK, thanks for the update.
As a non spouse beneficiary, she cannot transfer the 12k into her own IRA. Perhaps the IRA custodian is confused and thinks that the recent decedent is the spouse as only a spouse beneficiary can roll over an inherited IRA distribution into their own IRA.
She should establish an inherited IRA as a separate inherited IRA from the other beneficiaries. She can then take a full or partial distribution from the inherited IRA as needed and the 1099R will be coded 4 (death distribution) and the IRS will recognize that. While she is subject to the 10 year rule, she must also take beneficiary RMDs based on her single life expectancy starting in 2025 and drain the inherited IRA in 2034. Of course, due to the small amount and her intent to drain it very soon, the inherited IRA will be gone probably by next year at the latest.
Note that the 3 beneficiaries are jointly responsible for completing MIL’s 2024 RMD if she did not complete it. This can be done in any combination between the 3, and the deadline for completing that RMD is 12/31/2025. Therefore, if client drains the inherited IRA by the end of 2025, perhaps the others will not have to be concerned with the year of death RMD unless the others inherited far more than 12k and/or MIL did not take any of her large (due to age) 2024 RMD before passing.
Again, client’s owned IRA is not related in any way to the non spouse inherited IRA.