The Pitfalls of Transferring an Inherited IRA Account to a Non IRA Bank Account

Thursday, August 11, 2016

By Beverly DeVeny and Jeffrey Levine
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This week’s Slott Report Mailbag examines the RMD rules for business ownership after age 70 ½ and the pitfalls of transferring an inherited IRA account to a non IRA bank account. 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.

I will be 70 next year on May 12, 2017. My question here is that I am a 1% owner in a company I founded and gifted my children and grandchildren 49% of the 50% I own. (My wife holds the remaining 50% in her separate account). Can I as the 1% owner continue to contribute to my 401(k) after age 70.5 assuming I am still working and can I choose to defer my RMD?

Answer: 
Sorry, but it looks like the answer will be a mixed bag. Your business ownership will generally be aggregated with the ownership of certain family members. That leaves you still with a deemed ownership of more than 5% for the still working exception.  However, provided you are still receiving compensation, you can still contribute to the plan, but will also have to take required minimum distributions (RMDs) each year.

 

2.

I recently lost my mother and was the named beneficiary on her IRA with the bank. I went into the bank yesterday and had them transfer the IRA directly to her NON IRA bank account.

I’ve checked with NY Life and they will allow me to add the money to my inherited IRA if it’s coming from her account. Can I add it to my inherited IRA?

Answer:
Unfortunately, once inherited IRA funds leave the IRA account, you have a taxable distribution. To make matters worse, non-spouse beneficiaries, like yourself, cannot do 60-day rollovers of inherited IRA funds. Therefore, under the tax code, you’ve made an error that cannot be fixed. The whole account will be taxable to you this year.

 

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