How Many Trustee-to-Trustee Transfers Can I Make in One Year?

By Beverly DeVeny and Sarah Brenner
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This week’s Slott Report Mailbag looks at the proper titling on the IRA beneficiary form – and the headaches that ensue when the beneficiary form isn’t properly filled out to meet the desires of the deceased and/or their beneficiaries – and answers how many trustee-to-trustee transfers an IRA account owner can do in one year. As always, we recommend that 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.

Hello Mr. Slott,

First off, I’d like to tell you how much I enjoy reading your books and monthly updates. They have helped me and my financial advisor make better decisions on my IRA’s and estate planning. Now, if you have a minute, I have a question that I have asked my lawyer, two financial planners, my accountant (tax preparer) and two different IRA experts or specialists at the same bank and I get different answers from at least enough of them to be confused and concerned.

So here’s my problem. My wife has just inherited her father’s IRA and she is listed as the single beneficiary (her Father’s idea) of the whole amount ($250,000). Now that seems pretty simple, but here’s the issue. My wife wants to split the IRA with her bother and sister to be fair about it. The IRA custodian is Wells Fargo and they have told her that they can split the IRA “before” the IRA is retitled as an inherited IRA.

So you see my dilemma. If we believe the guy at the bank and go through with his split, then I am taking a chance of getting a 1099 next year for $160,000 because the IRS made see this as a distribution of my wife’s inherited IRA. Not to mention the added income to my wife’s and I annual income. My financial advisor has already approximated that this would throw us into the highest tax bracket since I already have to take RMDs (required minimum distributions) on another inherited IRA that I have.  

I have searched the web and read through many books (yours included) but I am still not sure about this. It was told to me that this was so rare of an issue that it just doesn’t exist. Well I find that hard to believe.

Thank you very much for any help,

Donald Carlton 

Answer:
This is not an uncommon problem unfortunately. IRS takes the position that the beneficiary of the IRA is whoever, or whatever in the case of an estate, trust or charity, is named on the beneficiary form at the time of the death of the account owner. In your situation, that is your wife. The account cannot be split, either before or after it is retitled, to give shares to unnamed beneficiaries.

You should investigate the possibility of doing a disclaimer. Disclaimed funds would then pass to any named contingent beneficiaries. If there are no other beneficiaries then the funds go in accordance with the defaults in the IRA agreement. The IRA agreement might be able to save you here if the defaults are first the spouse and if no spouse then the children. The disclaimed funds could then go to the siblings as if that were the way Dad had set it up. You will need to consult with an attorney in order to do this correctly. Your wife might need to disclaim twice to get this to work and to be sure that you meet all the federal and state rules for disclaimers.

The other possibility with a disclaimer is that it could go to Dad’s estate. If all three children are beneficiaries of the estate then this could also work. Again, your wife might have to disclaim twice. There is a drawback to this scenario. When the siblings inherit through the estate they cannot use their own ages to calculate RMDs. If Dad died before age 70 ½, they will have to use the five-year rule. If Dad died after 70 ½, they will have to use Dad’s age.

Other options are to take the RMD each year and gift the siblings up to $14,000, while keeping in mind that you will be picking up the income tax bill. Or, your wife can take the IRA and the siblings can take more of other assets in the estate to even things up.
 

2.

Am I correct that I can do more than one trustee-to-trustee transfer from or to the same IRA, or from an IRA to a Roth, per year, if both accounts are mine and not inherited? I know I can do only one indirect rollover per year.

Thank you for your help with this.

John

Answer:
You can do as many direct transfers in a year as you want between IRA accounts and between Roth IRA accounts. You can also do as many direct transfers as you want between IRAs you have inherited when they are inherited from the same person.