Some basic Traditional IRA Queries

One looks at their total Dec 31 year end balance to produce one Total RMD.

You may take a IRA RMD from any combination of (like flavored, i.e. traditional for traditional, roth for roth) IRA accounts you wish.

Yes, if the 2 RMDs in same year are your preference.

For the year you pass, an RMD in your name is due if you were 70-1/2/. The year after, she has 2 choices. If the IRA was moved to her name, as a spouse has this ability, it's fully her IRA, and no RMDs till she's

Note - there are reasons a spouse would choose either option. Move to own account allows delayed RMDs, and potential for Roth conversions. Treat as beneficiary IRA forces RMDs, but creates ability to withdraw with tax, but no penalty even if under 59-1/2. e.g. the 40 yr old beneficiary has an RMD, but can take withdrawals above this, if desired.

Thanks for the info. Very informative!

Mel

On 1/10/13 11:16 AM, JoeTaxpayer wrote: [Snip]

This only works if all the IRA accounts are the same type of Traditional IRA. It doesn't work if the accounts are different. There are three life expectancy tables for an IRA account: One for an account with a spouse who is more than 10 years younger as the sole beneficiary; one for an account where there are multiple beneficiaries or a spouse who is not more than 10 years younger; and one for an account that is an inherited IRA. You can not aggregate to obtain the MRD. You make 3 different calculations and once the total MRD is determined, you are free to withdraw it from any combination of accounts.

Technically, it is not a requirement that the account name be changed to the name of the surviving spouse. The law allows the survivor to leave it in the decedent's name and treat the account as if it were her own. I don't recommend this approach, but it works. If the surviving spouse elects to treat it as a beneficiary IRA, then the account must be renamed as a beneficiary account.

I tried to be clear not to mix traditional/roth/inherited,etc, but this is a great point, the RMD can be impacted based on beneficiary for the individual account. Nice catch.

Agreed, I say make the choice and title properly.

On Thursday, January 10, 2013 1:42:09 PM UTC-7, Alan wrote...snip...

Would an IRA set up with a living trust as the beneficiary (wherein my adult children will receive distributions) fall into the category of an "inherited IRA"?..TIA Ron

My understanding is that it can, but that you have to be careful to be sure the rules are followed.

___ Stu

What other category might an IRA with a living trust as the beneficiary fall into? What rules are you referring to that must be followed?..Thanks, Ron

Here's an article from the Wall Street Journal that talks about this issue:

also known as

But with the recent increase in the lifetime exemption, that will be a concern of far fewer people than before.

A major reason for setting up a trust is avoidance of probate. When beneficiaries are named to an IRA, it passes without probate, so there should be no problem from that standpoint if the trust is not named as the IRA beneficiary.

children will receive distributions) fall into the category of an "inherited IRA"?..TIA Ron

Trusts are not individuals and therefore have no life expectancy. As such, unless the revocable living trust is changed to give flexibility to the successor trustee regarding MRDs, the IRA would have to be emptied within 5 years from the death of the owner. This all requires very specific wording that conforms to IRS rules.

I don't know what you are trying to accomplish, but there are various different ways for handling how to name beneficiaries for a retirement plan to accomplish one's objectives. There are even IRA Trusts and look through trusts, etc. Any one thinking of naming any type of trust as a beneficiary of an IRA or qualified retirement plan needs to sit down with an expert in order not to screw it up.

And to adds to this thought, Stu - The exemption is now portable. So I die tomorrow, leave it all to Jane, she can pass on to J2 a full $10.5M with no (federal estate tax)

Thanks, I'd forgotten that. So that's another reason for the trust that has gone away.

___ Stu

The way it works is you take your 2013 $5.250M exemption, subtract the size of your estate at death, say $1M, and $4.250M gets passed to Jane who can then pass your $4.250 plus her own amount for the year of her death to J2 BUT only if an estate tax return is filed to transfer the balance.

Then it sounds like it still may be useful to have a marital trust. First because then no estate tax may be required if the first estate doesn't have more than the exemption amount.

But additionallly using a bypass trust would allow the assets in the trust to grow in value over time and that increase in value not be subject to tax in the estate of the second spouse to die. Sounds like with portability any increase in value would also come within the taxable estate.

___ Stu

Is that really how it works?

In the past (i.e. before 2010) it worked by figuring the tax on the entire taxable estate and then applying the unified credit which would eliminate the tax on the first $N of assets -- it was *not* an exemption (i.e. compute the tax on a reduced asset base).

Did that the 2010 changes (which were made "permanent" last week) change to an exemption/exclusion regime that is applied to the amount of assets before the tax is figured?

Two points: Yes it is the unused exclusion that is portable.

I did not notice that Jane was a spouse. You can elect the unlimited transfer to a spouse. So, for spouses, Jane could receive her deceased husband's $5.25M which she could add to her pwn exclusion.

Three points actually.... While this may eliminate the need for a bypass trust for federal estate taxes, a bunch of states still have estate taxes much lower then the feds and without portability. So, a bypasss trust would still be applicable in those states.

So is the current system an exclusion from the taxable estate (i.e. subtract exclusion from taxable estate, then compute tax) or is it a tax exemption/credit (i.e. compute tax on entire taxable estate, then take a credit against that tax)?

The actual calculation on the 706 is a credit equivalent. E.g., the 2012 exclusion of $5,120,000 has a credit equivalent of $1,772,800. See the instructions for Lines 9a thru 9d of the 706.