IRA Contributions, RMDs and Non-Spouse Beneficiaries Highlight Mailbag

This week’s Slott Report Mailbag includes questions on earned income for IRA contributions, required minimum distributions (RMDs) in the year of death and non-spouse IRA beneficiaries. As always, we stress the importance of working with a competent, educated financial advisor to keep your retirement nest egg safe and secure. Find one in your area at this link.

1.

For the purpose of making deposits to an IRA, are dividends, interests, and profits from the sale of stocks considered earned income, and could these full amounts be used to make deposits in an existing IRA?

Answer:
No. Dividends, interest, and gains from the sale of stock are not considered earned income (compensation) and can’t be used to make an IRA contribution. This is true even though dividends, interest, and gains are taxable income. Examples of earned income include salary and wages from your job or self-employment.

2.

I have a question about the required minimum distribution (RMD) in year of death. Here are the facts:

My husband (75 and required to take minimum distributions) died in April of 2012. I am the sole beneficiary of his IRA. He has taken no distributions prior to his death in 2012.

I am 68 and am not required to take minimum distributions. I have taken several small distributions from my IRA in January, February and March of 2012.

I intend to roll my husband’s IRA into my own and treat it as mine.

My question – Does the amount I have already taken from my IRA in 2012 count towards my husband’s RMD for 2012?

Thanks. I love the Slott Report!

Answer:
No. Unfortunately, you don’t get credit for taking distributions from your own IRA against the amount of your husband’s RMD, which you also must take by year-end. This is true even if you transfer your husband’s account balance into your own account before taking his year of death RMD.

3.

Ed,

I think we’re getting bad info from a broker dealer. I was told that non-spousal IRAs had to be rolled over within 9 months. As far as I know, the 9-month rule has to do with disclaimers and the beneficiaries have until December 31 of 2012 to roll and take RMDs from Mom’s IRA (death in 2011). Is there some kind of 9-month rule – perhaps a state rule – I am not aware of?

Thanks,

Donna

Answer:
Non-spouse beneficiaries can’t ever actually “roll over” IRA funds to an inherited (beneficiary) IRA. They can, however, do a direct transfer of those funds to an inherited IRA at any time. There is no 9-month rule in the tax code. Ideally, the funds should be transferred to an inherited IRA as soon as possible.
 

-By Joe Cicchinelli and Jared Trexler