Roth IRA and non-spousal beneficiary RMDs

Submitted by Alvin Young on Sun, 2008-03-30 03:42

Does a non-spousal beneficiary of a Roth IRA have to take RMDs?
If so, are they identical to those of a non-spousal beneficiary from a
traditional IRA?

Can (or should) the non-spousal beneficiaries of an IRA be minors
(e.g. grandchildren) or must (should) the beneficiary be a trust with the minors named as beneficiaries of the trust?



Submitted by Al Fry on Sun, 2008-03-30 04:14

1. Yes
2. Yes
3. Yes
4. A trust might be considered if IRA is very large. UTMA custodial accounts could be used if amount per bene is within State’s UTMA limits. If amount exceeds the UTMA limit, guardianships might have to be established which can add to admin costs, making a trust more attractive, especially if all benes are close in ages.



Submitted by Bruce Steiner on Sun, 2008-03-30 04:28

There’s no limit on transfers to a custodian for a minor under the Uniform Transfers to Minors Act. But as the amount gets larger, people are more likely to leave assets in trust rather than outright, to better protect the assets against the beneficiary’s potential creditors (including spouses), and to keep the inheritance out of the estate for estate tax purposes.



Submitted by Alvin Young on Sun, 2008-03-30 06:07

Thanks alfry & bsteiner for the info. I’m a bit confused about the UTMA part……. I understand what a UTMA is…..but I’m not sure how to apply to the IRA. Can you still do the stretch over the minor’s life and what is the titling that the account assumes? Is it Original Owner IRA, Beneficiary
Grandchild X, UTMA, Custodian Parent Y or something like that? And
RMDs have to be removed from that account and placed in a separate account?



Submitted by Janine Janine on Sun, 2008-03-30 14:08

[quote=”[email protected]“] But as the amount gets larger, people are more likely to leave assets in trust rather than outright, to better protect the assets against the beneficiary’s potential creditors (including spouses), and to keep the inheritance out of the estate for estate tax purposes.[/quote]

In the course of reading the posts in the forum, I have read many times one advantage of leaving assets in trust is to better protect the assets against beneficiary’s spouse (of great interest to me) and to keep the inheritance out of the estate for estate tax purposes. 1. Are we speaking of an irrevocable trust in that case? 2. Inheritance of whose estate for estate tax purposes, the owner or the beneficiary?

I have learned a great deal from this forum, more than my accountant seems to know. Although he knew that I made significant charitible contributions, he did not notify me about QDC’s, so I missed out for 2006. However, I learned about it in this forum in time for 2007.

Thank you very much.
Janine



Submitted by Bruce Steiner on Sun, 2008-03-30 17:15

After you’re dead, the trusts you create for your children have to be irrevocable. (Even if you say they’re revocable, and even if you try to revoke them from up above, we won’t know about it.)

Your IRA (and your other assets) will be in your estate for estate tax purposes. But if you leave your assets to your children in trust rather than outright, your children’s inheritances will not be included in your children’s estates for estate tax purposes (whereas whatever you leave to your children outright will be included in their estates).



Submitted by Alvin Young on Sun, 2008-03-30 21:11

[quote=”[email protected]“]1. Yes

4. UTMA custodial accounts could be used .[/quote]

If the normal UTMA titling is used, will the account be able to be stretched with RMDs over the lifetime of the beneficiary grandchildren? or will the tax be due upon transfer to the UTMA?



Submitted by Alan Spross on Sun, 2008-03-30 23:02

The life expectancy of the grandchild would apply in determining the RMD from the IRA. Here is some more on the proper beneficiary designation when using an UTMA to receive distributions:

http://www.foxbusiness.com/personal-finance/article/new-smart-way-leave-…



Submitted by Alvin Young on Sun, 2008-03-30 23:43

Thanks for the link, Alan. It sounds like the UTMA is the recipient of the RMDs for the IRA. How do you re-title the IRA in order to make it a beneficiary IRA for the stretch? Normally it would have the decedent’s name as well as that of the beneficiary. So this one would have the decedent, custodian and beneficiary names in the title?



Submitted by Alan Spross on Mon, 2008-03-31 00:06

Yes, it will be cumbersome and therefore some collaboration with the IRA custodian will be necessary to enable support from their processing system. A general example:

“Dick Jones as custodian for NY UTMA account FBO Steven Jones, as beneficiary of Charles Jones”

Beneficiary SSN would be assigned to the IRA. At state designated age, the beneficiary would then have to request elimination of the UTMA portion from the registration.



Submitted by Alvin Young on Mon, 2008-03-31 00:10

Thanks, Alan.



Submitted by Bruce Steiner on Mon, 2008-03-31 01:06

The article is making a big deal out of something simple. Naming a custodian for a minor is not novel, and does not rise to the level of a “strategy.” If the amount is large enough to warrant administering a trust, you’d set up the trust and name the trust as beneficiary. If not, you’d name the person individually. And if the person is a minor, you’d name a custodian for the minor. No big deal.



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