Inherited IRA that was re-registered as a Beneficiary IRA
A friend, whose husband died several years ago, inherited his IRA. The brokerage firm re-registered the IRA–ie, [u]FTB&B Cust for Beneficiary IRA of HUSBAND’s NAME, Beneficiary WIFE’s NAME[/u]. Before the husband died, he was taking RMDs. Since his death, the wife has only made periodic withdrawals. There was no mention of RMD’s needing to be taken. The wife was younger than the husband and is not yet 70.5 yrs old. The question–is she required to continue taking RMD’s based on her husband’s age; are the RMDs recalculated based on her age? The brokerage firm has never informed her of any RMD amounts or anything. Also, since this is an inherited IRA, could it not have been re-registered showing her as the new owner vs. still having her husband’s name on the IRA? What are her options at this point? The husband’s death was several years ago. Thank you.
Permalink Submitted by Alan Spross on Fri, 2008-03-28 18:53
The post death distributions would have to be compared to the RMD requirement of the spousal inherited IRA. Any distribution is automatically credited against the RMD requirement. This may have started under the prior mortality tables, which applied prior to 2002. I can’t recall if the surviving spouse could recalculate under the old rules, as they can now.
There is a default rule that says that the first year the surviving spouse fails to take her RMD figure as a beneficiary, she is deemed to have assumed ownership of the IRA. That generally works out fine if the spouse is not yet 70.5 since their own RMD would not start until then. The potential exposure to this is if ownership is assumed prior to age 59.5, then any distribution that were taken after the beneficiary distributions but prior to age 59.5 would incur the early distribution penalty.
She may as well re register it in her name now, whether it previously defaulted to her ownerhip or not. She has no exposure to excess accumulation penalties under these rules, but she could owe early withdrawal penalty of 10% of the early distributions actually taken. If that applies a Form 5329 could be filed on a stand alone basis. The IRS would likely bill an interest charge after receipt of the forms.