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Traditional IRA Inheritance Question
06-22-2022, 05:38 PM
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#1
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Dryer sheet aficionado
Join Date: Jan 2008
Posts: 27
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Traditional IRA Inheritance Question
Hello, I have questions about an estate that holds a Traditional IRA. In her Will, my relative who passed away in April 2021, left her entire estate to her heirs (about thirty heirs). She never married and had no children. The entire estate is valued at $1.4M. Besides 3 pieces of real property, and other financial accounts, there is a Traditional IRA valued at $775K. Like the estate, there is no named beneficiary designated for the IRA. According to the estate's Inventory and Appraisement form, which lists all estate assets and claims, "no claims are due and owing to the estate."
Does this mean that all taxes owed on the Traditional IRA have been paid? If so, is the $775K split among all beneficiaries just like all other assets?
Thanks for any info.
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06-22-2022, 05:48 PM
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#2
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Recycles dryer sheets
Join Date: Jun 2019
Location: Denver
Posts: 164
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I am thinking taxes will be due.
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06-22-2022, 05:56 PM
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#3
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Thinks s/he gets paid by the post
Join Date: Mar 2013
Location: Coronado
Posts: 3,707
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No, you can't assume that taxes have been paid on the tIRA. The IRS has no current claim on that money, but they will have one as soon as the account is liquidated. The only way you escape some of the tax liability is if the original owner kept records of non-deductible contributions. The estate administrator should look at past tax returns to see if they can find a form 8606 in her records.
I don't know if the estate will have to liquidate the account since it has no beneficiary or if it can be distributed to the heirs as 31 separate inherited IRAs. If the estate liquidates it, then the fed tax due is 37% of amounts over $13K.
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06-22-2022, 05:58 PM
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#4
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Recycles dryer sheets
Join Date: Jun 2022
Posts: 284
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I don’t know what the rules are for distribution of IRAs with no beneficiaries
As to taxes, the beneficiaries will have to pay taxes as their portion of the inherited IRA is distributed. The distribution / schedules depends on the individual and circumstances, but in most “normal” cases the beneficiary will need to liquidate within 10 years and taxes will be due as distribution income is realized.
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06-22-2022, 05:58 PM
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#5
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Thinks s/he gets paid by the post
Join Date: Dec 2015
Location: Santa Paula
Posts: 4,077
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INAL/CPA, but "no claims are due and owing to the estate." I believe there are no creditors owed.
There are a whole series of rules about inherited IRA's. For non spouses, I believe the inheritors must take an RMD based on their age the year after the original owner died.
However, with about 30 heirs, they would each get a little over $25 K each. Depending on their tax bracket, they might want to cash it out and be done with it.
Unless I am wrong, the big PITA is that every heir must open an IRA to receive the funds.
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06-22-2022, 06:04 PM
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#6
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jun 2006
Location: Boise
Posts: 7,882
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Quote:
Originally Posted by Souschef
There are a whole series of rules about inherited IRA's. For non spouses, I believe the inheritors must take an RMD based on their age the year after the original owner died.
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That used to be the rule, but as another poster mentioned, since the SECURE Act passed, most of the time they have about 10 years to distribute the entire balance.
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"At times the world can seem an unfriendly and sinister place, but believe us when we say there is much more good in it than bad. All you have to do is look hard enough, and what might seem to be a series of unfortunate events, may in fact be the first steps of a journey." Violet Baudelaire.
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06-22-2022, 06:33 PM
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#7
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Thinks s/he gets paid by the post
Join Date: Feb 2014
Location: NW Pennsylvania
Posts: 1,820
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The executor of the will needs to contact the holder/broker of the Traditional IRA with details about how the IRA Is to be divided between the 30 heirs - equal shares or otherwise. The broker will then need to create 30 new Inherited IRAs, one for each heir. It is likely that each heir will need to fill out some paperwork for their account to be set up - SSNs, names, addresses, etc. Once the new accounts are set up, the broker will fund them with the proceeds from the Traditional IRA.
Since these will now be Inherited IRAs, each new owner will have 10 years to withdraw the money from them as they desire - all at once, every year, after 9 years and 360 days, etc. The investments can grow tax free until withdrawn.
The new owner will owe taxes on withdrawals in the year they make them.
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06-22-2022, 07:16 PM
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#8
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jun 2007
Posts: 13,228
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The rules are different if you are a named beneficiary, or if the IRA passes to you through the estate. Less favorable for the later, which is why you should try to name beneficiaries for your IRA and keep them up to date. I'm not motivated enough to look up the exact differences but the OP can, or rely on the executor of the estate to explain it.
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06-22-2022, 07:47 PM
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#9
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Recycles dryer sheets
Join Date: Jun 2022
Posts: 284
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You have a good point
https://www.hg.org/legal-articles/wh...ignation-26375
Looks like the inherited IRA must be liquidated within 5 years. That is generally the rule if an IRA is not left to a specific named person with a designated lifespan. If you leave an IRA to a trust or other non person entity it usually has to be distributed in 5 years, unless the trust is a “see through” trust.
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06-22-2022, 09:57 PM
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#10
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Mar 2013
Location: Limerick
Posts: 5,655
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The IRA funds can be distributed to the heirs by check. They can then choose to pay the taxes, or open a beneficiary IRA and deposit the check within 60 days.
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06-23-2022, 06:02 AM
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#11
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Dec 2008
Location: On a hill in the Pine Barrens
Posts: 9,722
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So many changes, and so little time to ingest them.
If the decedent was taking an RMD prior to the recent legislative changes, is that IRA subject to the old rules or new ones?
For example, decedent started RMD at 70 in 2014.
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06-23-2022, 07:36 AM
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#12
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Thinks s/he gets paid by the post
Join Date: Mar 2013
Location: Coronado
Posts: 3,707
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Quote:
Originally Posted by Dash man
The IRA funds can be distributed to the heirs by check. They can then choose to pay the taxes, or open a beneficiary IRA and deposit the check within 60 days.
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The 60-day rollover is not allowed for non-spousal inherited IRAs. These accounts can only be established by the IRA trustee, after which they can be transferred to a new trustee if the account holder desires.
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06-23-2022, 07:41 AM
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#13
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Thinks s/he gets paid by the post
Join Date: Jun 2010
Posts: 2,140
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Quote:
Originally Posted by target2019
So many changes, and so little time to ingest them.
If the decedent was taking an RMD prior to the recent legislative changes, is that IRA subject to the old rules or new ones?
For example, decedent started RMD at 70 in 2014.
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The old rules. They are grandfathered in. The new rules took effect with people who passed away beginning Jan 1, 2020.
ETA - I guess to clarify, what counts is the date of death.
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And whatever your labors and aspirations in the noisy confusion of life, keep peace in your soul. With all its sham, drudgery, and broken dreams, it is still a beautiful world. Be cheerful. Strive to be happy.- Desiderata by Max Ehrmann
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06-23-2022, 07:46 AM
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#14
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Thinks s/he gets paid by the post
Join Date: Aug 2017
Location: Champaign
Posts: 4,729
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Moral of the story: keep beneficiaries up to date for tIRA, Roth, and bank accounts. There are many nightmare stories out there where unintended beneficiaries reaped all the benefits.
__________________
"Do not go where the path may lead, go instead where there is no path and leave a trail."
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06-23-2022, 07:48 AM
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#15
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Thinks s/he gets paid by the post
Join Date: Mar 2013
Location: Coronado
Posts: 3,707
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Quote:
Originally Posted by target2019
So many changes, and so little time to ingest them.
If the decedent was taking an RMD prior to the recent legislative changes, is that IRA subject to the old rules or new ones?
For example, decedent started RMD at 70 in 2014.
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The rules that were in effect on the date of death in April 2021 apply. Those rules say if she turned 72 any time before Dec 31 2020 (i.e. born in 1948 or earlier), then she had reached the age for RMDs. In that case, the estate can continue to take withdrawals from the IRA for the expected life of the decedent. Otherwise, if the decedent was born after 1948, then the estate has up to 5 years to empty the account.
The estate has to stay open and file tax returns as long as the IRA is open, so there's a lot of incentive to do it faster.
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06-23-2022, 08:56 AM
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#16
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Dryer sheet aficionado
Join Date: Jan 2008
Posts: 27
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Thanks everyone for taking the time to research and respond to this quirky tIRA inheritance situation. No question, I totally agree: designate a beneficiary for all $$ accounts, and update as needed. The info on rules changes to RMDs effective in 2020, is particularly helpful. Stay cool and comfortable!!
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