IRA inherited - options ?

In hindsight. Your mother's IRA should have spelled out the beneficiaries through the proper paperwork on file with the custodian. If the IRA were left in tact in her name, there would be RMDs each year based on the age of the oldest person in the group. The better way would be to do a direct transfer (even within same broker) to individual IRA titled "granddaughter name, beneficiary, broker, custodian, inherited ira." This IRA then takes on an RMD based on that individual beneficiary's age at the time. Taxes on due only on the amount withdrawn, no penalty. Greater sums can be taken out if they wish, but this account is not permitted to be converted to a Roth.

Curious how this happened. No amount should have been disbursed unless specifically requested. Sounds like yet another banker acting incorrectly. No offense to the one or two who know what they're doing.

This was my wife's mother - and there are 5 sibliongs - so I'm not sure of all the discussions and requests to the IRA insitution -

Bottom line - you're saying that the money from the mother's John Hancock IRA could have been requested as a transfer to an individual IRA at say Fidelity ?

Yes. An inherited IRA still has a different status, it's not combined with other IRA assets of the non-spouse beneficiary. When done correctly, the beneficiary takes RMDs starting the year after death.

There are things that can go wrong, and you need to be careful when titling the new account. It must be designated as a beneficiary IRA.

tnx for the info - is there an IRS pub concerning this ?

just would like to see what could have been done, and maybe why it wasn't or was not an option for the siblings as the lump sum distribution was put into a "safe handling account" and that was the only option I recall...... with it being fully taxable.

Of course -

This is Publication 590. The rules regarding beneficiaries are not all in the same place, so be patient with it. Pages 20 and 36 are key. Last - different rules for spouse vs non-spouse. Take a read and let us know if you still have questions.

Joe

The rules for non-spouse beneficiaries is not clearly stated in that publication. Apparently the rule is pretty simple: the beneficiary (non-spouse) must take distributions such that all is distributed within five years.

Not exactly right, Stu. A nonspouse beneficiary can elect not to take RMDs. If that election is made, the account must be emptied no later than 12/31 of the fifth year after the year of death. No distributions are required in any year. In lieu of using this method, the nonspouse beneficiary can arrange to take RMDs. The first RMD must be taken no later than 12/31 of the year after the year of death. So... if you don't arrange to take that first RMD, you are stuck with the five year rule. The life expectancy for RMDs is based upon whether the owner died on or after his/her required beginning date or died before the required beginning date. This is explained quite nicely starting on page 35 of the latest edition of Pub 590.

from another forum...

In most instances you could have rolled it into a beneficiary IRA and have been taxed as the distributions were made.

This would have worked if the IRA stated that the beneficiaries were individuals and not the trust or estate.

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I don't know how the IRA stated the bene's at the time of death. If it was just the mutual cross-pointing of spouses, and the dad had previously died, then I guess the IRA would have gone ..... ?

Not sure how then it was distributed directly from John Hancock to the 5 siblings in the form of a "Safe Handling Checking Account" for each - still at JH.

Stu - forgive me, but it's there.

From the page 36 I referenced:

"Other designated beneficiary. Use the life expectancy listed in the table next to the beneficiary?s age as of his or her birthday in the year following the year of the owner?s death, reduced by one for each after the year of the owner?s death if either of the following year since the year following the owner?s death."

As much as I like to bash the IRS, this document is pretty comprehensive. My understanding is what I cited applies to a properly bequeathed IRA. If the Custodian had no beneficiaries named and it passes via the will, then I believe your 5 year assumption is correct. Ed Slott has written many books and articles on IRA issues and he likes to show how a baby can be the beneficiary of a grandparent's IRA and that one account sets up the kid for life, 60 years of compounding.

Joe

Thanks for the information. I had looked at Pub 590, and I saw lots of information on inherited spousal IRA's but little comprehensible on others. This puts it into perspective for me.

Thanks. I missed that sentence when I looked at it the first time.

What if there is no _required_ distribution, viz. decedent died in 2008; no minimum distribution required from IRA and qualified plans in 2009 (special case)? Must one take an ersatz RMD in 2009 to establish the distribution pattern to avoid the five year rule, or does one have until

12/31/2010 for the first RMD?

Mark Freeland snipped-for-privacy@nyc.rr.com

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There is no RMD for 2009, so the first RMD is to be taken by 12/31/10. You got it right.