Inherited IRA
I’ve inherited an IRA from my father. I’m wanting to put it into a beneficiary IRA, so I can avoid the immediate tax and do the RMDs based on my age after the first year’s RMD being based on my father’s age. The financial institution cut a check made directly to me, instead of a Fiancial Institution Name FBO My Name.
Is it a problem for me to setup a beneficiary IRA using the check made out to me?
I told the financial institution that issued the check to me that I wanted it made out to my financial institution FBO My Name. They told me they couldn’t reissue the check with the change in Payee, because they would have to reinvest it, then cut the check and that broke IRS regs.
Bottom line, does the Payee name on the check limit my ability to open the beneficiary IRA?
Permalink Submitted by Alan Spross on Wed, 2008-04-02 19:29
Yes, this institution has created a huge problem, as a non spouse beneficiary cannot roll over a distribution. A check made out to you is fully taxable. You must pressure them to reissue the check, and it appears that your requested payee format would not make the grade either.
The check should be made out to the new IRA custodian, but should also show FBO you as beneficiary of your father. If the institution does not want to directly transfer the funds into an inherited IRA set up per above, they need to at least make the check out in a format that you can deposit into the new account. Then, even if you hand carry the check to the new custodian, it is still considered a transfer and not a rollover.
The key is that if you can cash the check, it is considered a distribution. This institution knew what you were trying to do, and did not seem to care. If they void a check and reissue it properly, the IRS is not going to care, but they seem to be more focused on some small added expense for them to do this correctly.
Loss of future tax deferral will potentially cost you alot of money depending on the amount we are talking about. You may have to insist on talking to a VP or someone in this firm that has the authority to rectify this.
Permalink Submitted by John Douglas on Wed, 2008-04-02 21:18
Thanks for the quick response!!
I really appreciate it.