Non-spouse inherited IRA rollover/transfer?

I would so call Fidelity to get their take on what is necessary right now, then back it up with the publications etc. search. The Fido call is quick-and-dirty, and since Fido has an interest in this, the chances of their getting it right (or correcting any mistake it makes in the actual transfer) are good.

See IRS Pub 590, "What If You Inherit an IRA", p. 20. It states:

"If you inherit a traditional IRA from anyone other than your deceased spouse, you cannot treat the inherited IRA as your own. This means [...] you cannot roll over any amounts into or out of the inherited IRA. However, you can make a trustee-to-trustee transfer as long as the IRA into which amounts are being moved is set up and maintained in the name of the deceased IRA owner for the benefit of you as beneficiary."

I suspect that the destination IRA would have to have been set up already by the deceased. Normally, an individual cannot open a new IRA in someone else's name, and they cannot mess with the beneficiaries without POA.

Also note the rules under "When Must You Withdraw Assets / IRA Beneficiaries", starting on p. 35.

...

You absolutely should be able to do a trustee-to-trustee transfer. See:

I think this guy isn't being "polite" and is instead trying another means to frighten her into leaving the assets with him. I could be wrong, but it wouldn't be the first time someone were being misled for such reasons.

She should talk to someone at Fidelity. They'll help her fill in the appropriate forms - she'll need a new account in addition to whatever accounts she has there already - to receive the assets. It should work similarly to a 401k->IRA rollover.

That's the only way to do this, as far as I know.

See IRS Pub p590, page 20:

"... you cannot roll over any amounts into or out of the inherited IRA. However, you can make a trustee-to-trustee transfer as long as the IRA into which amounts are being moved is set up and maintained in the name of the deceased IRA owner for benefit of you as the beneficiary".

I'd say that that's further evidence that the "advisor" is full of crap.

Note that that refers only to traditional IRAs. For the (different) rules that appy to Roth IRAs, refer to "Distributions After Owner's Death", p. 66 of IRS Pub 590.

PS....

IRS Pub 590 can be downloaded from

. (Sorry for the incessant posting. I kept getting rushed by interruptions.)

That's actually not a problem. There's a big difference between "John Doe's IRA" and "Inherited IRA of John Doe FBO Jane Doe", and Jane is allowed to open the latter, though she needs to give the custodian John's DOB, DOD, SSN and a death certificate.

-- Rich Carreiro snipped-for-privacy@rlcarr.com

The advisor is dangerously wrong. Rich, I recommend you have a copy of Ed Slott's recent books. As an advisor you need to know IRA rules cold to speak with authority.

joeu's cite is correct (of course, from IRS pub). An inherited IRA has to go as a direct transfer, no 60 day rollover applies. This false information from the 'advisor' would break the IRA and it would be deemed a distribution. That's enough reason to move away from him, I'd think.

joeu also wrote "I suspect that the destination IRA would have to have been set up already by the deceased. Normally, an individual cannot open a new IRA in someone else's name, and they cannot mess with the beneficiaries without POA."

The destination IRAs are not opened until they are about to be funded. Typically, an IRA must be opened with a deposit, but the paperwork to the receiving broker is enough. The new title of my account reads "Inherited IRA of JoeTaxpayer, beneficiary". No POA (power of attorney) was needed. A properly worded IRA beneficiary designation will come before any will or other paperwork, thus a proper (notarized) death certificate is all you need. In my case it helped that the money was staying at the same broker. They were happy to move it to the new account.

JOE

This false

For sure. I wonder if would be sufficient reason to sue for damages, if the false information resulted in a financial loss. I wonder what a court would decide.

You might consider retitling the inherited IRA with the current advisor before the transfer. It may not be necessary, but might ease the process.

Once the IRA is retitled, remember to declare new beneficiaries.

Rich Carreiro wrote:

"joetaxpayer" wrote

Like the paperwork and information on "inherited IRAs" accessible at

Fido is also currently offering up to a year of free trading for IRA accounts transferred to it (including inherited ones) valued over $25k.

Having worked with Fidelity for decades now, I find them a fount of well-organized information, both online and via their reps. I typed the phrase "inherited IRA" into the search window at the top of

, and several easy-to-understand hits came up, explaining quickly that the American guy is misguided.

By the way, I think "trustee-to-trustee" transfer, as Rich puts it, is erroneous. What would transpire here is a "custodial transfer" from "American Funds" to Fidelity. American is the current custodian. The goal is for Fidelity to take over custodian-ship of this inherited IRA. "Trustee" has some other meanings, and I think using it here would muddy the discussions with American and Fidelity.

In this context, "custodian" and "trustee" are treated the same. That is, both terms refer to the financial institution (e.g. bank or brokerage) where the IRA is maintained.

I will explain that in more detail below. But to keep it simple, merely look at IRS Pub 590 or the excerpts therefrom provided in this thread. The IRS uses the term "trustee-to-trustee transfer" for the kind of transfer that we are talking about in this thread.

To explain....

An IRA is an account that complies with the law and regulations defined in IRS Code section 408 (26 USC 408) and IRS Regulations section 1.408-1 et seq (26 CFR 1.408-1).

According to IRC 408(a), ``the term "individual retirement account" means a trust created or organized in the United States for the exclusive benefit of an individual or his beneficiaries``. IRC 408(a) (2) states that the "trustee is a bank [...] or such other person" that meets the requirements of IRC 408.

IRC 408(h) states: "For purposes of this section, a custodial account [that meets the requirements of an IRA] shall be treated as a trust if the assets of such account are held by a bank [...] or another person [that meets the requirements of IRC 408]. [....] [I]n the case of a custodial account treated as a trust by reason of the preceding sentence, the custodian of such account shall be treated as the trustee thereof."

As you may know, in law, the term "person" can apply to an individual or to an entity (e.g. corporation or partnership). But IRR 1.408-2(e) limits the use of that term as applied to the trustee of an IRA.

IRR 1.408-2(e)(1) states: "The trustee [...] may be a person other than a bank [...]. The person must demonstrate by written application that the requirements of paragraph (e)(2) to (e)(6) of this section will be met".

IRR 1.408-2(e)(2)(i)(A) states: "The applicant must assure the uninterrupted performance of its fiduciary duties nonwithstanding [sic] the death or change of its owners. [....] Therefore, the applicant cannot be an individual."

If there is any lingering doubt that the financial institution that maintains the IRA is treated as the "trustee" of the IRA, I leave you with an excerpt from Example (a) in IRR 1.408-2: "Trustee X is a broker-dealer and is a member of the Securities Investment Protection Corporation. Trustee X also has been approved as a nonbank trustee for individual retirement accounts (IRAs) [...]."

I hope that "unmuddies" the discussions here. I'm sure that both American and Fidelity understand that "trustee-to-trustee" refers to themselves. I know that Schwab does.

"joeu2004" wrote

Yes I read further and see that they are generally the same in this context, though with the caveat that sometimes a trust not meaning what you say it means is involved. E.g. Fidelity notes that an inherited IRA may be left to a trust, and Fido does not mean a custodian like itself here. Of course such a trust, in this other context, also has a trustee. For the laity, this may muddy the waters.

The "Fidelity IRA and Inherited IRA" application asks in section 2 whether the inherited IRA is "registered in the name of a trust, estate, or minor" (whence for the trust, there will also be a trustee different from American and Fidelity). The word "trustee" is used some 28 times in this application, and only in one instance does it mean what you wrote. The application uses the word "custodian" seven times, and six of those times it means what I indicated earlier. I know you understand the distinction, but the unwashed may not. I agree Fidelity will probably, with a few clarifying questions, know for what the customer is asking. But completing the form, for one, might be abetted by understanding the differences.

I'm sorry. It was not my intent to confuse you further by throwing a lot of legalese at you. In fact, my point was just the opposite: the term trustee-to-trustee transfer is not "erroneous" to use in this context, as you asserted it was; and it is not legalese.

It is the common term (or perhaps one of the common terms) used to describe this type of transfer, expressly to distinguish it from a distribution to an individual. It is the term that my brokers (Schwab, Fidelity, Wachovia, Metlife/General American and others) have used for this type of transfer.

Personally, I am always thrown off by the specialized meanings of "rollover", "direct rollover" and "trustee-to-trustee transfer". They are all "rollovers" in my mind. But that does not make it "erroneous" when someone uses those terms correctly, especially to distinguish them for the purpose of explaining the different rules that apply.

Of course, you are free to have your own preference. But another person's preference, when applied correctly, is no more "erroneous" than yours.

"joeu2004" wrote Re trustees and custodians:

Nor was it my intent to confuse you. I think the point has been made, and we're otherwise splitting hairs and trying the moderators.

The court most likely wouldn't have decided anything. The NASD is a self regulating organization (SRO). Most things are handled by impartial arbitrators. Its important that people are aware of that. A binding arbitration agreement is almost always signed, or buried in the fine print, when an account is opened.

All that aside, had a financial loss occurred, I am sure the advisors E&O company would have been shelling out a few bucks.

It is well known that "self-regulating" organizations tend to be lax in their regulation and protect their own people. Binding arbitration sounds like a good idea, but if I am not mistaken, some liabilities cannot be signed away despite what is in the fine print. For example, if an agent is guilty of gross negligence or out and out fraud, an action in court cannot be avoided by previous agreements in a contract.

Its true that criminal actions (like fraud) can and will be tried in a court of law. Other serious allegations, like the current Richard Scrushy indictments, also end in civil litigation but also have origins in criminal activity. Rarely, if ever, do any complaints that are not also accompanied by criminal conduct make it out of arbitration.

I was not aware that "It is well known that "self-regulating" organizations tend to be lax in their regulation and protect their own people". The implication is insulting, and I would love to see a source cited. Its not in my nature to let generalities pass as "fact" without validation, sorry.

Kastnna

Try to imagine what the stock market would be like today if the Securities and Exchange Commission had not come into existence in 1933 and everything had been left to "self-regulation" by the industry. Or consider what would happen if regulation of foods and drugs were left entirely to the companies who produce and sell them. Elimination of abuses in all kinds of business depends on governmental regulation with legal standards and penalties. Representatives of various industries always will say: "My business is special and all of us are very ethical and we are capable of regulating ourselves," but that idealistic picture rarely translates into practice.

That is your political opinion and one I do not share, but that is your right.

I an economist and a staunch libertarian. I'm laissez-faire and minimal government to the bone. I happen to think that most industries WOULD be better off if government agencies were not implemented to regulate them. Free market theory suggests that inferior competitors will either a)be driven out of business, b)rapidly grow to compete by improving their product, or c)not go out of business, but rather supply a lessor product for a lower price that some people would be willing to buy (IOW, fill a currently lacking market niche). Government agencies also slow free market response time with red tape, and costs a fortune to maintain (our fortune).

All that aside, your logic confuses me. You called the NASD corrput and fraternal in your original post, but now say that government regulation is necessary. The NASD is overseen by the SEC! Furthermore, their authority is completely dependent on their reputation of fairness and justice. They were given that authority BY THE GOVERNMENT and its agencies (the SEC) and they can be dethroned if the gov't finds them not serving their purpose. If government agencies are the answer, and the NASD is corrupt, then why in the SECs infinite wisdom do they not fix this SRO that they themselves empower?

I can see no logic in your claim that we need government regulation, but then once the government empowers and oversees an organization to do just that, you call that body corrupt. What makes a government agency superior to a government appointed agency that is continually monitored? The government already gave the NASD their "seal of approval" and the NASD isn't going to endanger that by becoming overtly corrupt.

**This has gone entirely off-topic and I apologize to the group and the mods. I will limit any further responses to email only.

kastnna