Slott Report Mailbag: How Do I Name a Properly Titled Inherited? IRA?

By Joe Cicchinelli, IRA Technical Expert

Follow Me on Twitter: @JoeCiccEdSlott

This week’s Slott Report Mailbag looks at the once-per-year rollover rules, touches on how to name a properly titled inherited IRA and once again dissects the always-confusing Roth IRA 5-year rules. 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.

Is there a rule that says the holder of an IRA-CD can get the higher interest rate at a bank once in a calendar year, even if the CD is for a longer term? Can banks have differing rules on charging for RMD withdrawals from IRA-CD’s?

S. Vogel

Answer:
There is no IRS rule that governs when you can get a higher CD rate. Check your CD documents to see if you’re entitled to transfer your IRA funds to a higher paying CD. Banks can charge fees and/or CD penalties for RMD withdrawals, but those fees and penalties must be disclosed to you. Fees can be different among banks. What you, as the IRA account owner, have to be careful of are the 60-day rollover rules. A rollover is when a distribution from an IRA is made payable to you and you then take the funds and put them back into an IRA. You can only do this type of transaction once every 12 months on the same funds. If you have any questions on this, you need to consult with an advisor who specializes in the IRA rules. This is not necessarily the person you talk to at the bank. For a list of Ed Slott trained advisors, go to our website: www.irahelp.com.

2.

I am confused about the naming of a stretch IRA. Per your book, you indicate an IRA inherited by child must be named “John Smith, IRA (deceased 10/27/11) FBO John Smith, Jr., beneficiary”. My IRA is currently named “Company A custodian FBO John Smith IRA”. How would this be renamed?

Answer:
There is some leeway on how a properly tiled inherited IRA is titled. The title must have the name of the beneficiary and the deceased IRA owner, and use the social security number of the beneficiary. For example, another correct inherited IRA title could be “John Smith, Jr. as beneficiary of John Smith, IRA.”

3.

Hello,

I was hoping you could clarify a question I have regarding the 5-year window for converted Roth IRA funds.

Is it accurate that if the first year IRA contribution was made more than 5 years ago and the investor is over 59.5 that the 5-year window for each conversion really no longer applies?

I thought that each conversion had its own 5-year window, but I just read that if the Roth had been initially funded over 5 years ago and the account owner is over 59.5 that it really doesn’t matter.

Thank you,

Ryan

Answer:
The answer to both of these questions is the same. The 5-year rule for conversions has to do with the 10% early distribution penalty. If the account owner is age 59 ½ or older now, there is no 10% penalty on a distribution of a converted amount. When the account owner is under age 59 ½ and takes a distribution of a converted amount within the first 5 years, the 10% early distribution penalty will apply.

The other 5-year rule applies to a qualified distribution. Once you have qualified distributions, there are no taxes or penalties on any amounts withdrawn. To be qualified, a distribution must be:

taken 5 years after your first Roth IRA is established
AND
after attaining age 59 ½; OR
after your death, disability, or for a first time home purchase.