Can I Move Non-IRA Assets to an Inherited IRA?

By Joe Cicchinelli and Beverly DeVeny
Follow Me on Twitter: @theslottreport

This week’s Slott Report Mailbag answers questions on moving non-IRA assets to inherited IRAs and accessing 403(b) funds and moving them to different accounts while still working. As always, we recommend you work with a competent, educated financial advisor to keep your retirement nest egg safe and secure. You can find one in your area here.

1.

Dear Mr. Slott,

My wife inherited a variable annuity from her brother.  She selected the stretch option and RMD payments have been received.

We would like to move this variable annuity to a lower cost provider.

However, one company that can handle the stretch option (most companies still can’t deal with this option) suggested that the annuity be moved into an IRA, not a variable annuity.  This company said it was fine to make this move and could be done with a 1035 exchange. Note: The original annuity was not in an IRA.

Can this exchange be done without any tax consequences?

Thank you,

Scott

Answer:
You cannot move non-IRA assets into an inherited IRA. Only inherited IRA or inherited employer plan assets can be directly transferred from one inherited retirement account to another inherited IRA account. If you moved the non-IRA assets into an inherited IRA you would have an excess contribution, which would be subject to a penalty of 6% per year for every year that it remained in the inherited IRA.

You also cannot move it into an IRA in your own name. The annual contribution limits would apply. For 2014, the maximum annual contribution is capped at $5,500 or the amount of your earned income, whichever is less. If you are age 50 or older this year, you can contribute an extra $1,000 for a total of $6,500. If you have no earned income or are age 70 ½ or older this year, you cannot make any contribution to an IRA.

2.

I’ve worked for a non-profit for about 25 years.  They had VALIC as our fund company for about 8 years.  Then switch over the MassMutual.  I have funds at both companies.  I’m wondering, without changing jobs, is it possible to rollover or move funds from the VALIC account to MassMutual, or to a IRA account I have with TD Ameritrade?

Do you know if there are any ways to transfer 403(b) funds to another fund manager without changing jobs or retiring?

Thanks for any help you can provide.

Dan Ripke

Answer:
Generally, you don’t have access to your 403(b) funds while you’re still working for that employer. You should ask for the summary plan description of your plan, which would tell you when you have access to your funds or if it is possible to move them from one approved provider to another while you are still working. You may have to wait until you retire or switch jobs to do a rollover.

3.

My mom passed away at 81 years old. She left her living trust as the primary beneficiary of her traditional IRA. The trust states that all assets are to be divided amongst her two children. How should the beneficiary IRA be titled?

Answer:
The beneficiary IRA will be in the name of the trust as beneficiary of your mom’s IRA. It must use the tax identification number of the trust. When the trust terminates, it can then split the inherited IRA and transfer each child’s portion to their own inherited IRA. However, each child will have to use the life expectancy the trust had to use. They will not get to use their own life expectancies.