Inherited IRA screw up

J

jpeter1093

Recycles dryer sheets
Joined
Jan 21, 2014
Messages
206
Location
Voorheesville, NY
I’m 64, retired. My Dad recently passed and I inherited a small IRA. After getting a check from his bank(as a beneficiary); I found out that I should have had it transferred to an inherited IRA rather than take a check and rolling it over myself.

I’m trying to keep my MAGI down. Do I have any options? Can I open a regular IRA and deposit it there? Did I misunderstand that it should only be transferred so open an inherited IRA?

Thanks.
 
Not much you can do outside of opening a traditional IRA in which you can put $7,000 in (and that's all). Did you cash the check? If *not* you *MIGHT* be able to remedy the situation and convert it to a inherited IRA.
 
Inherited IRAs have even more strict rules than regular. While it is possible under certain circumstances to put back a distribution from a regular (traditional/Roth/rollover) IRA, nothing I've ever come across shows the same flexibility/ability to do so with an inherited IRA. *

And the fact is based off of what you've written, you never actually had an inherited IRA. You were the beneficiary of your parent's existing IRA, and it was cashed out and closed? Then while technically you did inherit it, there is no (official in the eyes of the government) inherited IRA account... the fact that you haven't cashed it is likely meaningless as far as the IRS/distribution status is concerned. The money is out of that account.

What you did in this case is take a lump sum payout from the parent's IRA, liquidating and closing it, so there is no longer any IRA in existence and the deceased's account likely is permanently closed. They did not create an inherited IRA for you and THEN distribute? Then likely you have no way of creating one after the fact.

But the only/best suggestion is to contact the bank/investment company that you received the check from and ask them if it was possible to put this check into a newly created inherited IRA.

If you are 100% retired yourself, then you likely are not able to do an IRA contributions at all as suggested (putting into a traditional IRA) as they are only allowed from earned income, not from investments/pensions/SS.




*not an expert, just beneficiary of inherited IRA myself so based only on personal experience.
 
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To the experts out there.

Most of us list, beneficiaries on our IRA. When we pass. Does the financial institution,
contact the beneficiaries and ask, 1. Do you want a payout. 2. or do you want an
" inherited IRA ".

Or does the financial institution, just issue a "payout", upon receipt of death certificate.

Never gave this much thought, until now. Anyone, have "real life" experience. As to what happens?
 
wolf said:
To the experts out there.

Most of us list, beneficiaries on our IRA. When we pass. Does the financial institution,
contact the beneficiaries and ask, 1. Do you want a payout. 2. or do you want an
" inherited IRA ".

Or does the financial institution, just issue a "payout", upon receipt of death certificate.

Never gave this much thought, until now. Anyone, have "real life" experience. As to what happens?
Click to expand...

Well, after both my parents passed away we inherited Mom's IRA which she had inherited from Dad and rolled into her own. So it was an inherited non-spouse IRA to us. My brother was in charge of their finances so when Mom died he contacted Schwab and let them know what was happening and that we would all (7 of us) need to have inherited non-spouse IRAs set up. Schwab sent each of the paperwork which we filled out and they set up all the Inherited Non-Spouse IRAs. Once that was done, I set up a new Inherited Non-Spouse IRA with Vanguard and rolled mine over. Some of my siblings still have theirs with Schwab, some rolled them to new Non-Spouse IRAs like I did.
 
wolf said:
To the experts out there.

Most of us list, beneficiaries on our IRA. When we pass. Does the financial institution,
contact the beneficiaries and ask, 1. Do you want a payout. 2. or do you want an
" inherited IRA ".

Or does the financial institution, just issue a "payout", upon receipt of death certificate.

Never gave this much thought, until now. Anyone, have "real life" experience. As to what happens?
Click to expand...

Any custodian worth their salt will realize that if the beneficiary has options, it is very very bad customer service to choose an option for the beneficiary. Even more so if there are multiple beneficiaries, because sometimes one beneficiary making a decision can impact what choices are available to the other beneficiaries.

I'm sure they will wait to be contacted by either the executor or one of the beneficiaries and not act in any way to foreclose possibilities unless they receive specific instructions. To do otherwise could easily invite lawsuits.

In this case, while I don't have direct experience with custodians about this specific issue, I'm quite confident that the above would hold true for Vanguard, Fidelity, and Schwab. Probably many others too.
 
I would contact the bank/IRA administrator and play dumb... say, "I received this check, but I expected that it would just be transferred to an inherited IRA at your bank in my name, so why did you send me this check?... That can't be right?"... and see what they say.

Since you haven't cashed the check they may be able to unwind the distribution and put the money back in an inherited IRA in your name. Take the position that they made a mistake unless they show you something that you signed asking for the check/distribution. Even if you signed something you can say that you didn't understand what you were signing (though it might not do you any good).

Unless you signed something asking for a check... be firm... you can even threated to file a complaint with banking regulators and the IRS if they sent you the check without your authorization.

Better to have tried and failed than to have never tried at all.
 
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SecondCor521 said:
Any custodian worth their salt will realize that if the beneficiary has options, it is very very bad customer service to choose an option for the beneficiary. Even more so if there are multiple beneficiaries, because sometimes one beneficiary making a decision can impact what choices are available to the other beneficiaries.

I'm sure they will wait to be contacted by either the executor or one of the beneficiaries and not act in any way to foreclose possibilities unless they receive specific instructions. To do otherwise could easily invite lawsuits.

In this case, while I don't have direct experience with custodians about this specific issue, I'm quite confident that the above would hold true for Vanguard, Fidelity, and Schwab. Probably many others too.
Click to expand...

Thanks, Miss Molly. :) for your real life example.

Agree, with above post. Any custodian, should do the "right" thing.

However, OP, situation show how things can go wrong. :(

Will have to tell my kids, when wife and I are gone, Remember to ask
for " inherited IRA " forms.....hope they remember.....:LOL:
 
pb4uski said:
I would contact the bank/IRA administrator and play dumb... say, "I received this check, but I expected that it would just be transferred to an inherited IRA at your bank in my name, so why did you send me this check?... That can't be right?"... and see what they say.

Since you haven't cashed the check they may be able to unwind the distribution and put the money back in an inherited IRA in your name. Take the position that they made a mistake unless they show you something that you signed asking for the check/distribution. Even if you signed something you can say that you didn't understand what you were signing (though it might not do you any good).

Unless you signed something asking for a check... be firm... you can even threated to file a complaint with banking regulators and the IRS if they sent you the check without your authorization.

Better to have tried and failed than to have never tried at all.
Click to expand...



As a recent recipient of 2 inherited IRAs, this is the best advice of all.
 
I am actually startled that the custodian would have done a lump sum distribution without getting anything in writing from the beneficiary choosing that option. I had to sign off on what I wanted when my mother died and had a small IRA.

wolf said:
To the experts out there.

Most of us list, beneficiaries on our IRA. When we pass. Does the financial institution,
contact the beneficiaries and ask, 1. Do you want a payout. 2. or do you want an
" inherited IRA ".

Or does the financial institution, just issue a "payout", upon receipt of death certificate.

Never gave this much thought, until now. Anyone, have "real life" experience. As to what happens?
Click to expand...

I was the beneficiary of my mother's IRA. The custodian sent me a letter and gave me the option of the following:

1. Continue it as a beneficiary IRA. I would need to take an RMD that year based on my mom's life expectancy.

2. Lump sum payment where the taxable amount would be reported. This could be a delayed distribution or immediate.

3. Pay the proceeds in periodic payments over a minimum of 5 years.

On all of these, it was indicated that any taxable amount would be reported. I took Option 1. There was a form that I to fill out. I converted it to the inherited IRA and took the RMD as a tax withholding (it was to help pay my overall taxes for that year). Then, I transferred the inherited IRA to Vanguard.
 
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^^^ What you wrote is exactly what I would expect to happen.

It may well be that the OP received a mailing like this and took choice 2 not understanding the implications.
 
Those three choices are exactly what I was presented with in a meeting with the deceased’s FA when I inherited a non spousal IRA. I also inherited an annuity and was given the same three choices.
 
The OP may have been given those choices, too. One cannot tell from what was written in this thread.

As for as keeping income down ... If you cannot undo the check, then you surely cannot roll it over into your own IRA. The comment to put $7,000 into your IRA requires you to have earned income and the cash-out (aka withdrawal) from the inherited IRA does not count towards one's earned income.
 
I'm the OP. No options were presented. We (my brother and I) went into the branch stating we were beneficiaries of our deceased Dad's IRA and would like to close it and distribute the proceeds to us. That's the extent of it. They closed it and gave us each a check made out to us personally. We haven't cashed them and will be going back Monday to try and unravel it.

Thanks for all the advice.
 
It sounds like they did what you asked, but at a minimum they should have advised you of your other options so you could make an informed decision. If they didn't then I would complain and see if the whole thing can be reversed. It probably has not yet been reported to the IRS since that reporting usually takes place in early 2020 when they issue 1099-Rs and send the information to the IRS, so they may well be able to fix it if you haven't cashed the check.

In your discussions with them try to frame it as their mistake in not advising you of your options without being overly adversarial or combative but being firm and acknowledging no fault. If they haven't dotted their i's and crossed their t's but resist fixing it then file a complaint up the chain in the bank. In the financial institution I worked at complaints to the CEO or President were referred to more senior personnel for special handling. If they still won't fix it you may need to complain to their banking regulators or the IRS.

Keep in mind that despite your best protestations that you might ultimately lose the battle.

Did they require that you sign anything to authorize the distribution?

Do you have earned income that you could make a deductible IRA contribution to offset it?
 
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Conclusion. The bank agreed (after some pressure I put on them) to take back the check and do it the proper way; ie, direct transfer to a new Vanguard inherited IRA account.
 
jpeter1093 said:
Conclusion. The bank agreed (after some pressure I put on them) to take back the check and do it the proper way; ie, direct transfer to a new Vanguard inherited IRA account.
Click to expand...


That’s great news and a happy conclusion, worth your effort. Perfect timing too!
 
Good news. Had you signed anything? Had they advised you of your options?

What sort of pressure did you put on them?

Was there a quid quo pro of some sort? (Sorry.... I couldn't resist).
 
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