Inherited IRA

[SumDay]

We're retired, both over 65, and living happily off our SS, small pension, and IRA withdrawals as needed.

My mother in law passed in August and we're just now getting Edward Jones to move on the distribution of her IRA, and "some other account" (the sister-in-law/executor isn't real generous with information).

Today we got the check for the IRA distribution for $4,262.45.

They withheld $473.60

If I just deposit this in my checking account, I'll be taxed on the entire balance, correct?

If I want to roll it into an inherited IRA, I'll have to withdraw all of it within 10 years, correct?

The EJ rep isn't very helpful either. I called to ask him how much of the estate would be taxable because I'm concerned about our own Roth conversions, due to possible IRMAA issues. His reply: "none of it should be taxable and I'm not familiar with IRMAA."

I have a fee only planner, but thought I'd come here to see if anyone has any wisdom to share. Apologies for anything I neglected to mention.

 

[SecondCor521]

(The following assumes that the $4,264.45 is your entire beneficiary portion of the IRA in question. If that isn't the case, please correct me.)

I think either the executor or EJ made a mistake.

Typically, inherited IRAs are set up via a trustee-to-trustee transfer. So for example in this case, EJ should have set up an inherited IRA account for you and transfer your portion of the IRA from your MIL's IRA into your inherited IRA. If you wanted to then move it somewhere else, you could do a second trustee-to-trustee transfer.

Since you got a check, it sounds like someone (either EJ or the executor) decided to distribute the IRA to you. It appears you are stuck with being taxed on $4,262.45 of ordinary income this year, you won't be able to roll it over, and you won't have the 10 years you want. And the $4,262.45 will count towards your IRMAA for 2025. You'll of course get to put the $473.60 of withholding on your tax return this year.

"If you inherit a traditional IRA from anyone other than your deceased spouse, you can’t treat the inherited IRA as your own. This means that you can’t make any contributions to the IRA. It also means you can’t roll over any amounts into or out of the inherited IRA." -- IRS Pub 590-A page 20 at https://www.irs.gov/pub/irs-pdf/p590a.pdf

There is a very slim chance that you can ask EJ and the executor to administratively undo this. However, I think in order for them to do that you'd need to show that EJ made a mistake. If the executor just made the decision to distribute the IRA and told EJ to do so, then I doubt you'll get much cooperation from EJ.

Hopefully in the grand scheme of things the adverse impact of this isn't too much. You could, of course, ask the executor to consult with you more on these things before making such decisions, but that could go over like a lead balloon.

ETA: silvor's description above could work if it was silvor's spouse, or another type of rollover situation. In the case of an inherited IRA from a non-spouse, as is the OP's situation, then I think the above quote from Pub 590-A applies and no indirect rollover is permitted.

 

[all4j]

A couple of considerations...Is the check made out to your wife (that is, beneficiary of IRA)? If not, it could still be a trustee to trustee transfer on a 60 day clock. Is it possible that this represents a RMD made for your MIL in 2023? Often the case, that the current year RMD will be taken out before the IRA split between beneficiaries.

 

[SumDay]

Just got off the phone with the EJ 'Advisor'. Because here IRA was small, all the siblings agreed to take it in cash. My husband, unbeknownst to me, agreed to this, so this explains things better.

The cash in her living trust will be more substantial, but we won't be taxed on it.

Now, I need to figure out how to get theses siblings to communicate better.

Thanks all! Moderators, you can close this thread, please and thanks!

 

[MissMolly]

This is how I did it years ago:

Ijust deposited the check into my rollover IRA account. I kept good records also. You will get what they withheld back when you file your taxes if you do it this way.

So, unless something changed, this is how I did it.

This is bad advice. You are not permitted to roll an inherited IRA into your own IRA. You are required to set it up in an inherited IRA (assuming you're not cashing it in) with specific worrding required in the account title.

 

[SecondCor521]

This is bad advice. You are not permitted to roll an inherited IRA into your own IRA. You are required to set it up in an inherited IRA (assuming you're not cashing it in) with specific worrding required in the account title.

Indeed. Not to mention that the rules for inherited IRAs and traditional IRAs are different in several material respects.

 

[silvor]

This is bad advice. You are not permitted to roll an inherited IRA into your own IRA. You are required to set it up in an inherited IRA (assuming you're not cashing it in) with specific worrding required in the account title.

You are correct. I missed the “inherited “ part.