Jointly Owned Non-spousal inherited IRA

[WilliamG]

Not exactly a FIRE topic, but hoping some of you folks may have an answer.

Would like help with withdrawal options for a jointly owned, non-spousal inherited ira. Was initially set up as jointly owned with MRDs sent equally to each of two beneficiaries. Can one of the beneficiaries now make a total withdrawal of their share while leaving the other share intact?

Thanks for any insights!

 

[braumeister]

My understanding is that it's possible to divide the inherited IRA into individual IRAs for the joint beneficiaries, but only if the IRA custodian allows that. You would have to ask them.

 

[sheehs1]

I seem to be a bit confused. Can you clarify what you mean by "it was set up as jointly owned" because I don't see how this could have been done by the original owner (i.e. they owned it right?)

Do you mean jointly owned or jointly inherited? Who set up the MRD and when? Did the original owner do this or did the annuity company do this. Has it already been annuitized? Because if so, you may not have any options at this point. How long ago did you inherit this?

Can you obtain a copy of the original paperwork from the annuity company to see how the beneficiary designation reads? They usually have this paperwork copied into their system.
That is the first thing I'd recommend doing if you don't have this paperwork.

Typically if two or more people have inherited an IRA, the annuity company "should" split it into parts with each beneficiary being able to make their own choice about their part. This is what we did when four inherited my mother's IRA.

Beyond that your choices depend on the choices allowed you by the annuity company. They may have changed but typically your choices would have been (1) lump sum (taxes due on entire lump sum the year you take it, (2) Five year pay out (taxes stretched out over five years and (3) annuitize it for life with MRD's.

 

[MichaelB]

Not exactly a FIRE topic, but hoping some of you folks may have an answer.

Would like help with withdrawal options for a jointly owned, non-spousal inherited ira. Was initially set up as jointly owned with MRDs sent equally to each of two beneficiaries. Can one of the beneficiaries now make a total withdrawal of their share while leaving the other share intact?

Thanks for any insights!

AFAIK this can be done. The remaining amount is still subject to RMDs, the custodian would probably still see all parties as co-equal beneficiaries. Much easier to do this as braumeister says, if there is still time.

My understanding is that it's possible to divide the inherited IRA into individual IRAs for the joint beneficiaries, but only if the IRA custodian allows that. You would have to ask them.

Yes, but this has to happen before 12/31 of the year following the demise of the original owner.

I seem to be a bit confused. Can you clarify what you mean by "it was set up as jointly owned" because I don't see how this could have been done by the original owner (i.e. they owned it right?)

As I understand it the default for an inherited IRA with multiple beneficiaries is one joint account, and splitting can be done on request.

 

[jclarksnakes]

sheehs1,
I did not see anything in the OP that said anything about an annuity or an annuity company. Is there something in IRS code that says a jointly owned, non-spousal inherited ira has to be annuitized? BTW, I do know that the inheritors have to take RMDs. I also know a little about inherited IRAs and splitting them up among the inheritors but not nearly enough to address the OP's question if the IRA has been annuitized.

 

[sheehs1]

jclarksnakes, you are absolutely right! My apologies to the OP. I would like to delete my post since my response was heavily weighted toward an IRA annuity. I was able to delete the last one I posted but not the first one.

For some scatterbrain reason, I immediately thought "IRA annuity". That's what I get for posting too fast.

 

[jclarksnakes]

Well if it is in an annuity your information is good.

 

[WilliamG]

Thanks for replies. Fyi, got response on another site that should not be talking withdrawal but rolling one half of the total institution to institution.

 

[nun]

I have a Vanguard IRA with 2 equal beneficiaries. Vanguard told me that when I die they divide the IRA into two and the beneficiaries can then do what they like with the money.

 

[FinancialDave]

I have a Vanguard IRA with 2 equal beneficiaries. Vanguard told me that when I die they divide the IRA into two and the beneficiaries can then do what they like with the money.

This is the way to think about this problem, as far as I know there is NO such thing as a joint IRA. To be properly titled it needs to be split up and each Inherited IRA needs to be titled with both the original deceased owner's name and ONE beneficiary name.

Rules are thus that you have two options, which are usually cast in the first calendar year after the person's death. Each owner now has a choice, they can take the whole amount out within the first 5 years, or they can take an amount out each year that is at least equal to the RMD amount, as determined by table 1 in IRS pub 590.

If you don't start down the yearly RMD path, then the IRS will essentially assume that it must be liquidated by year 5 (not the path to take IMHO, unless it is very small and you don't want to mess with it)

fd

 

[nun]

This is the way to think about this problem, as far as I know there is NO such thing as a joint IRA. To be properly titled it needs to be split up and each Inherited IRA needs to be titled with both the original deceased owner's name and ONE beneficiary name.

Rules are thus that you have two options, which are usually cast in the first calendar year after the person's death. Each owner now has a choice, they can take the whole amount out within the first 5 years, or they can take an amount out each year that is at least equal to the RMD amount, as determined by table 1 in IRS pub 590.

If you don't start down the yearly RMD path, then the IRS will essentially assume that it must be liquidated by year 5 (not the path to take IMHO, unless it is very small and you don't want to mess with it)

fd

Yes I was thinking of splitting the IRA into two separate IRAs so there'd be no confusion, ie each individual would be a 100% beneficiary on a separate IRA, but the Vanguard rep said that's not necessary as they do that automatically when the beneficiaries make a claim.

 

[Texas Proud]

This got me looking as I was also wondering about a 'joint' IRA...


As one of the sites I read pointed out, it is impossible to have a joint IRA as the I stands for Individual... they were citing IRS...


I have looked here a bit, but can not find anything specific...

Publication 590 (2012), Individual Retirement Arrangements (IRAs)

 

[MichaelB]

A beneficiary IRA can have multiple beneficiaries, there is no obligation to separate it into multiple individual IRAs and it can remain an IRA indefinitely, as long as RMD's are taken each year. The distribution is based on the age of the oldest beneficiary. Technically it is not joint because it is still titled in the name of the original owner.

 

[FinancialDave]

A beneficiary IRA can have multiple beneficiaries, there is no obligation to separate it into multiple individual IRAs and it can remain an IRA indefinitely, as long as RMD's are taken each year. The distribution is based on the age of the oldest beneficiary. Technically it is not joint because it is still titled in the name of the original owner.

To be a little more specific it does matter if each beneficiary was named on the original title of the IRA. If a trust was named as the beneficiary, all bets are off for this discussion.

In general you can leave the IRA as one, but if you do so you have to take the RMD's based on the oldest beneficiary, and each beneficiary takes the same amount and is taxed on it at their ordinary income rate.

The reason it is best to set up individual accounts (or IMO the only way you should go) is that your RMD's are then determined by your age, and you have better control over what is going on in your IRA. As opposed to having one account where one person is in control of the investments. It is just best if you take control of your own destiny in this regard.

It is also recommended that you see your estate attorney to make sure this is done properly.

It can however be divided up at any time, it just needs to be coordinated.

fd

 

[jclarksnakes]

MichaelB answered the one question I did not know about but was wondering. If there are two or more beneficiaries the RMD amount is based on the age of the oldest beneficiary. I was specifically wondering if WilliamG and his cobeneficiary might run afoul of the RMD rules when he posted about equal RMDs And I do think FinancialDave is right that you should split it up so you do n ot at some point down the road have a problem with the beneficiaries having different investment objectives.

 

[WilliamG]

The IRA is set up for the benefit of both my brother and I with oldest (me) being the RMD basis. Set up in 2000, so no easy just change your mind approach. We each could use a little extra right now and having this split between us to manage as needed would be simplest approach. An alternative I guess would be to agree on an increased withdrawal periodically and take them together.

 

[WilliamG]

Another question. What happens if one co-beneficiary dies? Assume can go to his/her stated beneficiary which means having a way to split the account is necessary or does it usually revert to the surviving beneficiary?

 

[FinancialDave]

Another question. What happens if one co-beneficiary dies? Assume can go to his/her stated beneficiary which means having a way to split the account is necessary or does it usually revert to the surviving beneficiary?

It depends on how it is titled with the investment company.

fd

 

[WilliamG]

Titled in name of deceased FBO the two beneficiaries.

 

[MichaelB]

Each beneficiary must name successor beneficiaries. If a beneficiary dies the successor beneficiary gets his or her share. All beneficiaries must continue to take RMDs based on the same formula being used now, so the age of the oldest beneficiary now determines all future minimum withdrawals, even if one dies.

You can withdraw more than the RMD anytime you want, and you are under no obligation to split the withdrawal 50/50. If you do so, you and your brother must do all the record keeping. The custodian will assume the remaining balance is owned 50/50 and all the IRS really cares about is that the minimum distribution obligation is met by each and the entire withdrawal is recorded as income.

 

[WilliamG]

Thank you Michael. Sounds like you are saying that you can first set up (or ensure already set up) beneficiaries for each current beneficiary and then the potential for a rollover to another institution could be addressed.

 

[sheehs1]

Titled in name of deceased FBO the two beneficiaries.

That is the way it is titled now, but I remain interested in knowing what the beneficiary designation was on the original paper work. That is/was the determining factor in how it was to be handled, along with any specifications of any trust linked to the estate.

So, was it "to the estate" or were both of your names on the beneficiary name line?

Just seems to me it could have been split into two back in 2000, provided both of your names were on the beneficiary name line. Perhaps the bank or holding company missed a step but they often do not do anything without direction from a beneficiary.

Here it says, " If the IRA is not split into two, then....". Meaning it probably could have been split. Just don't know if it can still be split after all these years but may be worth a try.

Inheriting an IRA - Bogleheads

 

[sheehs1]

To be a little more specific it does matter if each beneficiary was named on the original title of the IRA. If a trust was named as the beneficiary, all bets are off for this discussion.

fd

+1
Is why I keep going back to what the original paper work said.

If both your name and your brother's name were on the beneficiary designation line, then you had every right to have it split into two at that time. You legally owned half and your brother legally owned half. But you would have had to have known this and requested the split. Hopefully you are still able to do this...with the original paperwork as your justification.

 

[MichaelB]

Thank you Michael. Sounds like you are saying that you can first set up (or ensure already set up) beneficiaries for each current beneficiary and then the potential for a rollover to another institution could be addressed.

That was not my intention, so I will state differently. Each beneficiary should name one or more successor beneficiaries for their share. If they die, the successor beneficiary(s) is (are) entitled to the share of the IRA balance that corresponded to the beneficiary. It cannot be rolled over, only withdrawn, and the required minimum distribution is the same as it was for the original beneficiary.

So, in your case, you and your younger brother can each name successor beneficiaries. If either of you passes away while the IRA is still funded, the successor beneficiaries will be entitled to receive the share that originally belonged to the unlucky deceased brother, but they cannot roll it over and must take RMDs based on your age, even if you are the unlucky one.

 

[WilliamG]

And if no beneficiaries are named when one of the owners might die, their share would default to their estate and go through probate right?