Inherited IRA

[Corporate ORphan]

I am trying to figure out what to do with an IRA that my mother left to me and my two siblings when she recently died. My mother had a trust so we get that divided equally 3 ways without any tax implications.

It looks like the only options we have with her IRA is take a lump sum or roll it into an Inherited IRA. Both have tax implications that need to be settled this year(?). I am 59 years old, my sister and brother are 61 and 65. My mother was 89 when she passed away so she was taking RMDS.

Anyone know anything about inheriting an IRA from a parent I tired to read the IRS publication but it gave me a headache.

Thanks!

 

[MichaelB]

I am trying to figure out what to do with an IRA that my mother left to me and my two siblings when she recently died. My mother had a trust so we get that divided equally 3 ways without any tax implications.

It looks like the only options we have with her IRA is take a lump sum or roll it into an Inherited IRA. Both have tax implications that need to be settled this year(?). I am 59 years old, my sister and brother are 61 and 65. My mother was 89 when she passed away so she was taking RMDS.

Anyone know anything about inheriting an IRA from a parent I tired to read the IRS publication but it gave me a headache.

Thanks!

Lots of experience here, not an unusual situation. Others will be along to answer but a critical question is who is / are the beneficiaries of the IRA, the trust or the children?

 

[steelyman]

I don't know what your immediate cash needs are, but one option is to retitle it. The fund/brokerage company will know how to do that properly.

You'll have to take RMDs (required minimum distributions) starting the year following the death, but they're based on your age.

 

[MBAustin]

Sorry for your loss, orphan (that somehow seems too appropriate at this time).

I had to research this also this year after my mother's death and here are some sites I found easier on the brain than the IRS publication:

Inherited IRA Rules

Five Rules For Inherited IRAs - Forbes

As Michael pointed out, you need to know who the beneficiaries are first of all. You may need to contact the company where she had the IRA to verify this.

if she had not taken all of her RMD for this year before her death, it needs to be taken out by the beneficiaries before the end of December (and of course it will be taxable income to them).

I will say that it took about 7 months of my sister (the executor) working with the mutual fund company where Mom had her IRA to get it divided up. Some of the paperwork requirements were truly amazing, so don't be surprised when they ask for lots of things to be signed, guaranteed, etc.

Good luck with the process and come back if you have more specific questions!

 

[Sarah in SC]

If it isn't too much, and the beneficiary could use the cash, it is a lot easier to go ahead and take it in a lump sum rather than roll it into an Inherited IRA.

Pro tip if you do the Inherited, create one at the current brokerage house. Then open up an identically titled one at brokerage of choice, and do a trustee-to-trustee transfer between them.

 

[Bikerdude]

More good info from a USA Today money article:

"Baby Boomers are set to inherit a lot of money – $11.6 trillion by one estimate.

But if an inheritance involves an individual retirement account, tax traps abound."

Advice IQ: Inheriting an IRA? Tax traps abound

 

[GrayHare]

if she had not taken all of her RMD for this year before her death, it needs to be taken out by the beneficiaries before the end of December (and of course it will be taxable income to them).

tIRA withdrawals after the owner dies but during the year of the owner's death are taxable to that owner's estate.

 

[GrayHare]

You'll have to take RMDs (required minimum distributions) starting the year following the death, but they're based on your age.

If there are multiple beneficiaries, the RMDs for all non-spousal beneficiaries of an Inherited IRA are based on the age of the oldest beneficiary.

 

[steelyman]

If there are multiple beneficiaries, the RMDs for all non-spousal beneficiaries of an Inherited IRA are based on the age of the oldest beneficiary.

I am not an accountant, but I don't think that's true. You split the original account among the beneficiaries and use each's age. I went through this.

Each has to establish their own inherited IRA (with all the necessary psperwork, including death certificates).

 

[MichaelB]

If there are multiple beneficiaries and the IRA is left in one single beneficiary IRA account, the RMD's are based on the age of the oldest. One option is the IRA is split into separate accounts, one for each beneficiary, each account then takes RMDs based on the age of the new owner.

 

[Gill]

tIRA withdrawals after the owner dies but during the year of the owner's death are taxable to that owner's estate.

Yes, but if the estate is being distributed in the same year the tax burden will fall on the beneficiaries.
Bruce

 

[LOL!]

No wonder why the IRS info gave you a headache. Even the answers in this discussion give me a headache.

My spouse has an inherited IRA from her deceased mother. I have an inherited IRA from my deceased mother. Both of these IRAs had multiple beneficiaries.

In our cases, the original IRA was divided up to the beneficiaries and the beneficiaries opened inherited IRAs for benefit of [beneficiary]. This was easily accomplished by the original IRA custodian. After that the beneficiaries either (a) withdrew the entire amount of the IRA and spent it themselves or (b) kept the inherited IRA and started the required minimum distributions for themselves the next year.

The year my mom died, she had not taken her RMD yet. The RMD was satisified by one of the beneficiaries withdrawing their entire balance, so that the other beneficiaries did not need to do anything in the year of her death to satisfy her RMD.

BTW, my mom's estate was not directly involved as this IRA passed outside of her will. Nevertheless, the executor of her estate made sure the custodian new of the death of the IRA owner and did the right things.

My advice: Get help from the custodian of the iRA and follow their lead to have 3 separate inherited IRAs set up and divide up the iRA. Then let your siblings do what they want to with their inherited IRAs and you can do what you want to with your portion.

 

[RE2Boys]

More good info from a USA Today money article:

"Baby Boomers are set to inherit a lot of money – $11.6 trillion by one estimate.

But if an inheritance involves an individual retirement account, tax traps abound."

Advice IQ: Inheriting an IRA? Tax traps abound

Thanks for the link, real good summary

 

[scrabbler1]

My best friend's mom (and remaining parent) died in 2012 and my friend and his sister split her IRA (along with a large brokerage account) which contained various stocks, bonds, mutual funds, and cash.

The brokerage company's rep split the assets in a manner agreed to by my friend (I was helping him) and his sister. His sister's husband worked in financial services so he needed clearance for certain individual stocks to minimize any potential conflict-of-interests.

His mom had not yet taken her RMD for 2012 so the rep did that first before splitting the IRA into its two parts for each sibling by transferring cash from the IRA to the brokerage account. That was a taxable event, of course, but the taxes on that were handled by the family accountant who prepared the estate's tax return. It was not a taxable event for either sibling.

I had my friend take the cash in his inherited IRA and put it into a bond fund so it would not be sitting there doing nothing. I also set up his IRA so that the rest of the IRA's assets would generate slightly more cash than its annual RMD would withdraw from it. This way, he won't have to sell any of the individual stocks or bonds in there. This plan will last for at least 10 years until the RMD cleans out the small cash surplus building up in the cash account. At that time, we can switch the bond fund's monthly diviends from being reinvested to being taken as cash.

Because his inherited brokerage account generates a lot of investment income, we use his RMD to pay state and federal income taxes on the added income. He doesn't need the RMD for his day-to-day expenses.

 

[ERD50]

I don't know what your immediate cash needs are, but one option is to retitle it. The fund/brokerage company will know how to do that properly. ...

Don't count on it.

My suggestion, from recent experience, is to learn the basics and understand what it is you need/want to do, and understand the options available to you (there are good links already posted).

With a little understanding, you can better communicate to the IRA custodian what you need/want. The terms they use aren't really common-sense, they are just 'rules'. So don't assume anything is right just because it sounds right.

This isn't rocket science, but it still seems to be easy to get it messed up. In our case, the family member handling this didn't ask any questions, and maybe didn't describe it in the correct terms, and it got hosed and had to be undone/re-done, causing extra work and delays.

-ERD50

 

[steelyman]

"Be informed" is the key (in a lot of things).

 

[powerplay]

I have an inherited IRA from my aunt who passed away last year. There were 3 beneficiaries and the entity holding the IRA separated it into 3 inherited IRA accounts for us. I moved my share to Vanguard and just talked with them a few weeks ago to establish the withdrawal of my required amount for 2014. Vanguard did not receive the $$ prior to 2014 so they did not have an end of the year balance and asked me what it was. Their calculations were exactly what I had set up in a spreadsheet based on info from on IRA's from the IRS website. My RMD is set up to happen on Dec. 1st this year and for future years unless I change it. My experience was fairly easy as I sold the stocks and bonds prior to rolling over a cash account to Vanguard directly into a mutual fund. The timeframe was 2- 2.5 months for all of this.

 

[Corporate ORphan]

Beneficiary Form misplaced

US Bank can not find the beneficiary form for 1 IRA. DB can't either. CHances are when DM created the IRA it wasn't US Bank. Anyone know how to find the chain of banks before it? I have been googling with no luck. I figure DB has the beneficiary form but it's in another banks name. DM was very careful about that. She had a trust and made sure EVERYTHING was in it (and DB had her spread out). I can't believe she didn't fill the form out.


Also anyone know if their is a way to determine if their was a beneficiary form if the bank says they don't have it and you can't find it??


Thanks!!!

 

[Corporate ORphan]

More in this saga. DB figured out the following:
DM's IRA CD matured so she moved it to a money market in April 2014 at US Bank.
.
She originally set up an a 59 month IRA that was up on 1/7/2002 at Firstar Bank. At that point she must have designated beneficiaries but it was not with the document DB has. He wonders if Firstar did not give her a copy. (He has other beneficiary forms from out of date IRAs at other banks). DM was a packrat.

The next paperwork he has is from US Bank, which bought Firstar, on July 9. 2007. It was for a 10 month CD. When that matured she turned it into a five yr CD that matured in early 2014. Since then it has been in a money market at US Bank for the last 10 months.


DB sent paperwork to move it to Fidelity this year but US Bank would not release it unless my mother came into a branch and she was not healthy enough to make the trip.

There were several opportunities for US Bank to alert us that there was no beneficiary form that they could document. In early 2014 when the CD matured and my brother and mother went to move it to the money market, they were asked if they wanted to update beneficiaries. Since they figured it was her three children, mom and my brother said no. (I know, shame on them!) The US Bank rep did not check to see what was on file. We think by asking if they wanted to update it, that implies that they had a filled out form on file.

My mother had IRA accounts at about 6 institutions. This is the only one with an issue. She was very careful about anything that had to do with money.

Anyone have any ideas besides a lawyer We have gone to one and she says all we can do is go to probate, which, of course, she can handle for a fee.

Thanks again!