FloridaJim57
Recycles dryer sheets
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?
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 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.
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.
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.
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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".
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?
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.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?
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.
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.
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.
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.
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.
See https://www.investopedia.com/ask/answers/09/inherited-annuity-distribution.asp
I know others have answered but I just went through this in June.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?
I believe for multiple inheritances, some differences "might" occur based on dates of death of first (original) and second owners. If original owner died before 01/01/2020 one set of RMD rules would apply. If second owner died after 01/01/2020, because of Secure Act a different set of withdrawal rules might apply.
Differences might also occur based whether first inheritor was a spouse of decedent or not, and whether third inheritor was not a spouse or was a spouse of second inheritor.
IRS might also have thrown in some arcane rules for third inheritors as well, but like you I am not at all sure of what those rules might be.
Drafters of the [Secure Act] bill were somewhat aware of this potential issue and built a provision into the bill that grandfathers certain existing annuities under the old lifetime stretch provisions as long as they were qualified income annuity products sold before Dec. 20, 2019 (prior to enactment of the SECURE Act) in which the income annuity payments were fixed and irrevocable. Certain other products were then subject to the 10-year term.
Do you think we could close the annuities within the IRAs and still keep the IRAs temporarily?
Our end game is to transfer them with Fido for simplicity's sake. I guess it is a horse and a horse if we combine them first into an inherited IRA with the current custodian and them transfer just the 1 Inherited IRA to Fido. Or have Fido take the 2 and combine them along with another IRA from another of her custodians. Probably the least amount of paperwork is to do the latter.