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Inheriting money in an IRA
Old 09-19-2021, 06:58 PM   #1
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Inheriting money in an IRA

Most of my money is in my IRAs. Can someone explain in really simple language what the people in my will have to do in order to get the money. Is it very difficult for them?
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Old 09-19-2021, 07:09 PM   #2
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Usually you would have beneficiaries listed and they would notify whoever your IRA is with. Then they would most likely need to provide a death certificate and fill out paperwork. It is really not difficult at all.
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Old 09-19-2021, 07:13 PM   #3
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I inherited an IRA from my mom who passed away in 2019. The IRA was split in-kind between myself and my 2 siblings, each of us receiving 1/3 of the assets.
I have since sold those assets in my portion of the IRA and reinvested them appropriate for a 10year life, the time required to take RMDs from an inherited IRA. I will take my 1st distribution this year in 2021.
Not a hassle at all.
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Old 09-19-2021, 07:30 PM   #4
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My "snake-bit" friend split an inherited IRA with his sister after their remaining parent (mom) passed away in 2012. A rep from the investment company (Morgan-Stanley-Smith-Barney), after taking the RMD (it hadn't been taken yet), split the IRA between the two beneficiaries. Soon thereafter, my friend and I did an asset transfer of the IRA to Fidelity, his desired destination. All moves went smoothly except for Hurricane Sandy which delayed MSSB's actions because their NYC-area offices (where we all live) suffered some damage.
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Old 09-19-2021, 07:37 PM   #5
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Most of my money is in my IRAs. Can someone explain in really simple language what the people in my will have to do in order to get the money. Is it very difficult for them?
People "in your will" have no claim on your IRA unless they are also named as beneficiairies of your IRA accounts. Beneficiary designations rule, and the IRA custodian won't even bother asking who is in your will. The custodian is bound by law to distribute the account to the named beneficiairies.

So, be sure to get your IRA account beneficiary designations up to date.

Upon your passing, the executor of your estate can notify the custodian of your passing, and the whereabouts of the named beneficiaries, and the custodian should contact them shortly (or they can contact custodian to goose them) for distribution of the IRA accounts.

Custoidan will give them info on options they have for inherited IRA account handling.
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Old 09-19-2021, 07:37 PM   #6
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I listened to a podcast on the subject, so I feel like an expert. Real experts please chime in if I'm saying this wrong-

Make sure that the beneficiaries listed on the account are the ones you want as the IRA will pass according to the beneficiaries and it has nothing to do with the will.

Also, make sure you have listed contingent beneficiaries in case one or more of your primary beneficiaries has passed. A mistake some make is to forget to indicate the contingent beneficiaries and to include "descendants, per stirpes". Let's say you put your kids as beneficiaries but didn't put "descendants, per stirpes" as contingent beneficiaries. Then if one of your kids passes before you, their children are out of luck, your IRA would pass entirely to your other kids, your grandkids by your deceased child would get nothing.

I checked my own accounts and sure enough, one of my own accounts had my wife as the primary (you can't exclude your spouse without their signed permission), but I had forgotten to assign contingent beneficiaries.
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Old 09-19-2021, 07:38 PM   #7
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One thing to watch out for is the titling of the inherited IRA by your heirs (assuming it's not a spouse). The IRS has specific guidelines that must be followed.
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Old 09-19-2021, 07:53 PM   #8
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FloridaJim57, please discuss your estate plan with a qualified professional in your state. Everything written here is approximately correct, but some is wrong or misleading or incomplete. I'm going to "correct" a couple of comments below according to my understanding. But I might be wrong or misleading or incomplete too...you never know.

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Originally Posted by RetireeRobert View Post
People "in your will" have no claim on your IRA unless they are also named as beneficiaries of your IRA accounts. Beneficiary designations rule, and the IRA custodian won't even bother asking who is in your will. The custodian is bound by law to distribute the account to the named beneficiaries.

So, be sure to get your IRA account beneficiary designations up to date.

Upon your passing, the executor of your estate can notify the custodian of your passing, and the whereabouts of the named beneficiaries, and the custodian should contact them shortly (or they can contact custodian to goose them) for distribution of the IRA accounts.

Custodian will give them info on options they have for inherited IRA account handling.
Not quite right. Beneficiary designations on an account will supercede whatever the will says. However, if no beneficiaries are listed, or if "Estate of FloridaJim57" is listed, then the IRA will go through probate and be handled according to the will. There can be significant tax ramifications of this, but it's perfectly legal and might be what the person wants.

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Also, make sure you have listed contingent beneficiaries in case one or more of your primary beneficiaries has passed. A mistake some make is to forget to indicate the contingent beneficiaries and to include "descendants, per stirpes". Let's say you put your kids as beneficiaries but didn't put "descendants, per stirpes" as contingent beneficiaries. Then if one of your kids passes before you, their children are out of luck, your IRA would pass entirely to your other kids, your grandkids by your deceased child would get nothing.
How to list beneficiaries is a complicated topic. The way you've described this scenario isn't accurate. FloridaJim57, I'd just suggest you learn about how "per stirpes" works, and how contingent beneficiaries work, and make sure that whatever beneficiary designations you choose represent your wishes. Again, a qualified professional in your state is the best bet to make sure you get things right, not just SGOTI.

...

To answer the actual question posed in the OP:

1. If you list beneficiaries on your IRA (which is probably the most common way to do things), then any of those beneficiaries can go to the IRA custodian (Vanguard or Fidelity or Schwab or whomever) with a copy of the death certificate and the IRA custodian will work with them and the other beneficiaries to set up inherited IRAs. It's straightforward and shouldn't take very much time or effort. Once they get the IRA, they generally have until 12/31 of the year which contains the 10th anniversary of your death, unless they meet special rules for some other schedule.

2. If you don't list beneficiaries on your IRA, then it will probably become an estate asset. Whomever you have listed as your executor or personal representative in your will is responsible for contacting the IRA custodian and getting the assets distributed according to whatever your will says.

There's a third category if you don't have a will and don't list beneficiaries, but you mentioned a will so that category doesn't apply to you.
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Old 09-19-2021, 07:59 PM   #9
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Originally Posted by SecondCor521 View Post
FloridaJim57, please discuss your estate plan with a qualified professional in your state. Everything written here is approximately correct, but some is wrong or misleading or incomplete. I'm going to "correct" a couple of comments below according to my understanding. But I might be wrong or misleading or incomplete too...you never know.



Not quite right. Beneficiary designations on an account will supercede whatever the will says. However, if no beneficiaries are listed, or if "Estate of FloridaJim57" is listed, then the IRA will go through probate and be handled according to the will. There can be significant tax ramifications of this, but it's perfectly legal and might be what the person wants.



How to list beneficiaries is a complicated topic. The way you've described this scenario isn't accurate. FloridaJim57, I'd just suggest you learn about how "per stirpes" works, and how contingent beneficiaries work, and make sure that whatever beneficiary designations you choose represent your wishes. Again, a qualified professional in your state is the best bet to make sure you get things right, not just SGOTI.

...

To answer the actual question posed in the OP:

1. If you list beneficiaries on your IRA (which is probably the most common way to do things), then any of those beneficiaries can go to the IRA custodian (Vanguard or Fidelity or Schwab or whomever) with a copy of the death certificate and the IRA custodian will work with them and the other beneficiaries to set up inherited IRAs. It's straightforward and shouldn't take very much time or effort. Once they get the IRA, they generally have until 12/31 of the year which contains the 10th anniversary of your death, unless they meet special rules for some other schedule.

2. If you don't list beneficiaries on your IRA, then it will probably become an estate asset. Whomever you have listed as your executor or personal representative in your will is responsible for contacting the IRA custodian and getting the assets distributed according to whatever your will says.

There's a third category if you don't have a will and don't list beneficiaries, but you mentioned a will so that category doesn't apply to you.


OP clearly stated "can someone explain in simple language".
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Old 09-19-2021, 08:47 PM   #10
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Our daughter's the beneficiary of a big portion of our Rollover IRA. She's already an accountant and paid very well. It's not part of the probate proceedings.

She'll have to liquidate the Inherited IRA within 10 years, and the addition will throw her in a big tax bracket.
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Old 09-19-2021, 09:40 PM   #11
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OP clearly stated "can someone explain in simple language".
“Make things as simple as possible, but no simpler.”

― Albert Einstein, Selected Writings
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Old 09-20-2021, 05:34 AM   #12
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DW is going thru this process this very week. For her, she had to open an account with the custodian of the decedent's IRA. That was an effort in itself. Personal info including Net Worth, Goals etc were required to be listed. The usual stuff for opening an IRA. In spite of telling the custodian our intention of moving it to Fido, we still had to open an account with them. WTF? Then, the shares (not dollars) will be transferred to DW's Inherited IRA account. At that time, DW can sell, trade etc. or transfer to another custodian. It is an easy process but filled with paperwork.

One form she was given to fill in was a form entitled " Distribution Request". Things like Lump Sum or Monthly or Annually were possible selections. We weren't asking for it to be distributed. DW, on my recommendation, told them was not signing that form. He said just leave them blank. Uhhh No! We'll see if they come back asking again,
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Old 09-20-2021, 06:17 AM   #13
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The steps to getting the IRA in the beneficiaries name seems to be largely related to who the IRA is held by.
My father had an IRA held by a bank, and that was easily transferred with a death certificate and some forms I had to fill out.
My Dad's other Ira was an annuity. It was a nightmare dealing with this company. (Can't remember the name) My dad had my brother and I as 50/50 beneficiaries on both, but my brother had predeceased my dad. My dad was so heartbroken that he never revisited his will and named beneficiaries.
Each IRA handled this differently. The bank gave 100% of the IRA to me as surviving beneficiary. The annuity did not care about surviving beneficiary, and only gave me 50% of the IRA. The will had to be probated, myself named the only inheritor, the other half of the annuity cashed out (ouch) and then what was left came to me as cash.
This was an important lesson to me that I wish too share with all of you. Make sure you know what happens if a beneficiary predeceases you. I suspect many would assume it goes to surviving beneficiaries, but not always the case.
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Old 09-20-2021, 09:00 PM   #14
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Most of my money is in my IRAs. Can someone explain in really simple language what the people in my will have to do in order to get the money. Is it very difficult for them?
we just went through this as my wife's BIL passed away earlier this year. among the items she inherited were two IRAs and a 401k. my BIL had a trust but retirement accounts are typically not included in a trust. Instead, beneficiaries are listed. Upon the death of the account owner either the custodian will notify the beneficiary or vice-versa. My wife provided the custodians with the death certificate and her ID and there was some paperwork involved, some on actual paper, some online. all in all it was a very smooth process. it just took time. be sure to keep the beneficiaries up to date including addresses and phone numbers. btw, life insurance policies are also generally not included in a trust. my BIL had three LI policies...two traditional and one annuity. the claims process and payout for all were very simple to complete including the annuity.
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Old 09-21-2021, 06:51 AM   #15
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On a similar note, MIL had another 3 annuities with a single custodian. 2 of them in IRAs (yes separate IRAs we think) The custodian says DW cannot combine them into 1 Inherited IRA. Does that sound right? I don't understand the reason for having 2 IRAs within a single custodian. Both IRAs are tax deferred.

Further, Re: the 3rd annuity that is not in an IRA, the custodian says we will have up to 5 years to fully close out that account. Is there some federal rules driving that? Or is it totally their policy requirements?

These are very old annuities, some 40+ years old. We are fortunate that sometime in the recent past, she renamed the beneficiaries from "The trust of....." to the individual names of the children. Immediate taxation is avoided and the 10 year rule applies to the IRA annuities.
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Old 09-21-2021, 08:13 AM   #16
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Procedures may vary depending on where it's held. You should find out from where you have your IRA what their process is. And then document it in your papers that you are hopefully leaving behind so that your accounts are easy to find.
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Old 09-21-2021, 03:02 PM   #17
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Further, Re: the 3rd annuity that is not in an IRA, the custodian says we will have up to 5 years to fully close out that account. Is there some federal rules driving that? Or is it totally their policy requirements?
I don't know if it is a federal rule, but last year DH inherited an annuity at John Hancock that is not in an IRA and chose the option to fully close out that account within 5 years. I thought there was also an option to simply keep the annuity as it was, but I do not have the paperwork where I am.
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Old 09-21-2021, 05:43 PM   #18
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On a similar note, MIL had another 3 annuities with a single custodian. 2 of them in IRAs (yes separate IRAs we think) The custodian says DW cannot combine them into 1 Inherited IRA. Does that sound right? I don't understand the reason for having 2 IRAs within a single custodian. Both IRAs are tax deferred.
The IRS would allow your wife to combine the two inherited IRAs since they're from the same person. The custodian is not required to allow it just because the IRS does.

The two separate accounts may be related to how your MIL acquired them. If one was inherited from her spouse, or if one was a 401k rollover to a segregated account, they may never have bothered to combine them. They may also be separate if it was an actively managed account and the FA's policy is to charge different fees for different types of management or different investment vehicles.

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Further, Re: the 3rd annuity that is not in an IRA, the custodian says we will have up to 5 years to fully close out that account. Is there some federal rules driving that? Or is it totally their policy requirements?

These are very old annuities, some 40+ years old. We are fortunate that sometime in the recent past, she renamed the beneficiaries from "The trust of....." to the individual names of the children. Immediate taxation is avoided and the 10 year rule applies to the IRA annuities.
See https://www.investopedia.com/ask/ans...stribution.asp

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As someone other than the surviving spouse, you will basically have three potential options:
a) Lump-sum payout
b) Full payout over the next five years
c) Elect within 60 days to annuitize over your own lifetime

If the annuity payments have already begun, you must take the payments at least as rapidly as the original owner was taking them. The period of time when an annuity is being funded and before payouts begin is referred to as the accumulation phase.
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Old 09-21-2021, 05:54 PM   #19
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The IRS would allow your wife to combine the two inherited IRAs since they're from the same person. The custodian is not required to allow it just because the IRS does.
@cathy63, would that still hold true if one was an inherited IRA from which MIL might have been taking RMDs, and the other one was MIL's personal IRA from which she may or may not have been taking her own RMDs? The possibility that MIL had two different RMD schedules she may have been required to follow makes me wonder.

There isn't much written on the topic of the second inheritance of an IRA (i.e., owner dies -> beneficiary (MIL) dies -> third person (OP) inherits), so I don't know much about how it works. I think it's different from the first inheritance occurrence but am not sure.
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Old 09-21-2021, 09:24 PM   #20
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@cathy63, would that still hold true if one was an inherited IRA from which MIL might have been taking RMDs, and the other one was MIL's personal IRA from which she may or may not have been taking her own RMDs? The possibility that MIL had two different RMD schedules she may have been required to follow makes me wonder.

There isn't much written on the topic of the second inheritance of an IRA (i.e., owner dies -> beneficiary (MIL) dies -> third person (OP) inherits), so I don't know much about how it works. I think it's different from the first inheritance occurrence but am not sure.
I don't think it matters if one IRA was inherited by MIL and one was her own. Since the new heir is her adult child, both accounts will be subject to the 10 year distribution requirement as specified in the SECURE Act. The heir doesn't have to take RMDs, regardless of what the previous owner was doing, so both accounts are treated the same after the transfer.
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