Inherited IRA Time Bomb (Long Story)

[gcgang]

DW has one titled "Her Mother Deceased FBO DW IRA". It's at a "full service" brokerage. The firm doesn't calculate RMDs, but the FA does.


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[doughroller]

It is a minefield. When one transfers or does a rollover do not assume the bank or institution knows what they are doing. I transferred a bank IRA CD to an IRA savings account in preparation for a transfer to Vanguard. Clearly the person handling the paper work did not understand what an inheritance IRA was. After it was done I went to the bank manager and insisted something was not right and sure enough it was not done right and was set up as a traditional IRA. Fortunately the paperwork had not gone to the IRS and the bank corrected everything internally. One thing I learned is the title must note the name of the deceased or it will raise red flags with the IRS. Vanguard seems to be on the ball but you must make clear that they are handling an inheritance IRA.

[Southern Geek]

Quote:

Originally Posted by 38Chevy454 Also, my 1099-R are coded 4 in box 7. Always have been since it became an inherited account.

I'm curious. Other than the code 4 in Box 7, is there any other indication that your 1099-R is for an Inherited IRA?

[Southern Geek]

Quote:

Originally Posted by doughroller ... One thing I learned is the title must note the name of the deceased or it will raise red flags with the IRS. Vanguard seems to be on the ball but you must make clear that they are handling an inheritance IRA.

Since this was the first IRA I had ever been involved with, the whole concept of correct titling of the IRA was confusing. In execution, where should the title appear? I know it has to appear on the documentation for the transfer (for the transfer of my children's Inherited IRA, the checks sent from the original custodian to the FCU were the documentation - the correct title and all other info was on the check itself). However, where does the title 'reside' at the endpoint? Some reading I've done say name of decedent should be in the account registration, but this registration is likely not directly accessible to the client. In the case of this FCU, I assume the name of the decedent is a part of the electronic note, but I don't know for sure as I can't see the note. I'm thinking that my children, as the account owners, need to request some sort of documentation from the FCU that shows the IRA is properly titled, and this documentation needs to be able to withstand scrutiny from IRS.

[scrabbler1]

A few follow-up items to what I posted earlier:


The full title of my friend's inherited IRA is "John Doe - IRA BDA - (Original Depositor Jane Doe) - FMTC Custodian" where John Doe is my friend's name, Jane Doe is his mom's name, and FMTC stands for Fidelity. This is shown on the IRA's annual statement and all the monthly statements. Furthermore, on the 1099-R form, it shows Jane Doe (his mom) as the original depositor.


In the Fidelity website, there is not only the amount of the RMD but a calculation of it. The RMD is based on the IRA's balance on 12/31 of the year before (12/31/2014 for 2015's) and his life expectancy. This is recalculated every year based on the new account balance and his new life expectancy which is simply one year less than what it was the year before. For example, in 2013 it was 34.20, in 2014 it dropped by one to 33.20 and for this year, 2015, it dropped again by one to 32.20.


SG, it should be pretty easy t transfer the Inherited IRA to Vanguard because they already have another account there (Roth IRA). When I helped my friend transfer his Inherited IRA from MSSB to Fidelity, it became pretty easy because we had already transferred his inherited brokerage account from MSSB to Fidelity and Fidelity had all of his account information such as address, phone number, SSN, etc. We had to select some different options because it was an inherited IRA but our common Fidelity Account Executive had showed us how to do it when we did the brokerage account transfer a few weeks earlier on line. Would Vanguard have a problem transferring an inadequately titled (Inherited) IRA to a correctly titled Inherited IRA should you go that route? I don't know, you'd have to ask them.

[jebmke]

Banks are notoriously bad at reporting IRAs correctly. I do a few hundred returns a year and most of the 1099R errors are banks, not institutions like Fidelity of VG. I would never hold an IRA at a bank (although there are reasons other than just their reporting).

When my BIL died I had to sit with the bank branch manager, call their tax department and I ended up teaching both of them how IRAs are reported for deceased taxpayers. A more dimwitted bunch I have never encountered. It was a major bank.

VG has a specialty group that handles retirement related matters. Whenever I call my rep he always connects me directly to this group if the subject is IRAs.

[38Chevy454]

Quote:

Originally Posted by Southern Geek I'm curious. Other than the code 4 in Box 7, is there any other indication that your 1099-R is for an Inherited IRA?

On my Fidelity account the info indicates it is inherited, even to the point they can trace back to my father's ssn and history. Shows the split of assets between 3 kids, and where each 1/3 went. It is also listed as BDA in the name in Fidelity's records. So for me the good thing is it is all correct and fidelity has the knowledge how to do it.

I will say again, that I did have to make a change to be under my accounts, so the RMD is based on my age, not my father's. As a strict inherited BDA, it used his age to calculate the RMD percentage. Once I rolled it under me, it uses my age; although it does have required distributions since the source of funds was my father. Age difference for the percentage allows it to grow as much as possible when i really don't want or need the RMD, but required to take it.

[Texas Proud]

Quote:

Originally Posted by 38Chevy454 On my Fidelity account the info indicates it is inherited, even to the point they can trace back to my father's ssn and history. Shows the split of assets between 3 kids, and where each 1/3 went. It is also listed as BDA in the name in Fidelity's records. So for me the good thing is it is all correct and fidelity has the knowledge how to do it. I will say again, that I did have to make a change to be under my accounts, so the RMD is based on my age, not my father's. As a strict inherited BDA, it used his age to calculate the RMD percentage. Once I rolled it under me, it uses my age; although it does have required distributions since the source of funds was my father. Age difference for the percentage allows it to grow as much as possible when i really don't want or need the RMD, but required to take it.

What is BDA I looked it up and was surprised at how many things use this abbreviation....

OPPS... found it.....Beneficiary Designation Account (inherited IRA account)

Check out the others... some are a hoot....

BDA - What does BDA stand for?

[scrabbler1]

Quote:

Originally Posted by Texas Proud What is BDA I looked it up and was surprised at how many things use this abbreviation.... OPPS... found it.....Beneficiary Designation Account (inherited IRA account) Check out the others... some are a hoot.... BDA - What does BDA stand for?

Pssst......I wrote BDA's definition on the first page of this thread and that post got quoted once on the first page of this thread, both near a post you made in the first page of this thread. I had to look it up, too, but in my search I entered "IRA BDA" and was spared some of the more creative definitions of BDA.

[Texas Proud]

Quote:

Originally Posted by scrabbler1 Pssst......I wrote BDA's definition on the first page of this thread and that post got quoted once on the first page of this thread, both near a post you made in the first page of this thread. I had to look it up, too, but in my search I entered "IRA BDA" and was spared some of the more creative definitions of BDA.

Hey, who remembers what was on the last page

[target2019]

Quote:

Originally Posted by Texas Proud Hey, who remembers what was on the last page

LOL. I am looking at one page of threads and thinking you are both nuts.

What do you do if the first page is the last page and you still can't remember what's on the first page?

[wolf]

Thanks OP. Figured by now Inherited IRA's would be routine. Thanks for

the information. Guess, will have to tell wife and kids, and leave

instructions. Keep funds in Vanguard.

[tulak]

I'm glad this worked out for the OP. When my mom passed away four years ago, she left behind a traditional IRA that was split between three siblings. Fortunately I help her setup her IRA at Vanguard years before and after she passed, all it took was a phone call to Vanguard to have them create three inherited IRAs and transfer the correct amounts to each one. Vanguard knew exactly what to do with the existing IRA and clearly explained the options available in transferring the funds to the inherited IRA. They also spent time explaining the different options for distributions, etc. Based on my experience, I'd second the recommendation to use a bank/brokerage company that handles a lot of these accounts.

[harley]

Quote:

Originally Posted by Texas Proud What is BDA I looked it up and was surprised at how many things use this abbreviation.... OPPS... found it.....Beneficiary Designation Account (inherited IRA account) Check out the others... some are a hoot.... BDA - What does BDA stand for?

Thanks for the info. I was assuming Black Dragon Army, and wasn't sure why the IRS cared.

[ERD50]

I know I'm late to this thread, but I've been going through some similar issues, and wanted to have time to give the OP some thought ...

Quote:

Originally Posted by Southern Geek Over a year ago, I had a conversation with both children and recommended they transfer the IRAs to Vanguard. At the time, neither seem interested even though they both already have Roth IRAs at Vanguard. After this incident, I plan to bring it up again.

Like so many others have already mentioned, the banks are hit and miss with this (mostly miss it seems). Since your kids have Roths at Vanguard, that is even more reason to get the others there. They may want to do conversions at some point, and that can only be done within the same institution (AFAIK).

And they should just do it. Really. Based on what has already happened, there is no way I'd want to keep an IRA there.

Quote:

Originally Posted by Southern Geek ... I'd be interested if anyone on this forum who has experience with Inherited IRAs at National banks or firms can tell me if their client facing records (paper statements, Web account access, etc.) indicate that the IRA is inherited. ....

I think others covered this, but didn't they get statements? Those statements would show a difference between a regular IRA and Inherited IRA. Of course, if you don't know what to look for, you wouldn't know if something was wrong or right.

But that gets to another point, this stuff is confusing, and while we should be able to rely on financial institutions to do it right, but we really need to study up a bit ahead of time, so we can double check what they did. Even thought it seemed like everything was right at the time, a look at the statement versus what you expected might have caught this earlier.

-ERD50