Inherited IRA
My father In Law’s wife passed away Sept. 15th 2008;
Is there a 60 day rule he must abide by to get the IRA’s she had transferred into his name?
🙁
My father In Law’s wife passed away Sept. 15th 2008;
Is there a 60 day rule he must abide by to get the IRA’s she had transferred into his name?
🙁
Permalink Submitted by mk foss on Thu, 2008-10-23 16:58
I’m not sure of the exact question. If he is her beneficiary and wants to roll the IRA into his name, there is no time limit – a rollover must be completed by the survivor’s date of death.
If he intends to take her IRA as a beneficiary, he could change the name of the IRA to a beneficiary account. That step is not necessary and there is no time limit to complete it.
If the IRAs were his and she was named as a beneficiary, the contingent beneficiary would automatically become the beneficiary. If there is no contingent beneficiary, he should name a new beneficiary fairly soon but there is no fixed time limit.
Permalink Submitted by charles lore on Fri, 2008-10-24 01:12
Further the IRA can be left in the same account number and he can have the IRA retitled to his name…. a new account need not be opened. Also if he were to play the ole of a beneficiary of the inherited IRA ( instead of roll over to his own name) .. he could at anytime then roll it over to his name.
This would only make sense if surving spouse were
Permalink Submitted by Alan Spross on Fri, 2008-10-24 03:20
Retaining the inherited IRA structure may also pay off for older surviving spouses of younger IRA owners if they are the sole beneficiary. They do not have to start RMDs until the year the deceased spouse WOULD HAVE reached 70.5.
But if the IRA remains as an inherited IRA, the survivor must be sure to name a new successor beneficiary ASAP. The successor beneficiary will still get a full stretch if the survivor passes prior to the year they would have to begin RMDs as a beneficiary.
Permalink Submitted by charles lore on Fri, 2008-10-24 04:22
It is important to note that when the surviving spouse does begin rmd , whether from an inherited ira structure or as an owner, uses the recalculation method. This results in a lower rmd which is a good thing. When ss dies her benefciary( if its not a new spouse) must use fixed term method. This starts with beneficiary’s life expt, and drops by 1 each yr.
Permalink Submitted by charles lore on Fri, 2008-10-24 04:32
Actually I want clarify a point and if Im wrong someone please tell me.
In the inherited ira structure when ss dies and non spouse successor bene takes over you look at when ss was on her recalc schedule on dod and drop that by 1 every yr there after . But in the owner structure the beneficiary life expectancy is starting point and then drop by 1 each yr.
Permalink Submitted by Evan Unterlack on Mon, 2008-10-27 03:30
My daughters 10 1/2 and 8 have inherited $50,000 each from my Great Aunt’s IRA upon her death. I intend to use the funds for college. If I rollover the IRA to an Inherited IRA can they use the funds for college without being taxed. If they are taxed is it at the parent’s tax rate or theirs. Is there any tax strategies or consequences I should be aware of?
My Aunt died in May 2008 and the funds have not been transferred.
Thanks,
Evan
Permalink Submitted by Alan Spross on Mon, 2008-10-27 04:23
Evan,
If separate inherited IRA accounts are set up for each daughter, an annual RMD is required each year using their individual life expectancies, the first one being due no later than 12/31/2009. Under your state law, these distributions may have to go into a custodial account. The distributions are fully taxable regardless of their use, but there is no penalty for distributions in excess of the RMD because these are inherited IRA accounts.
The RMD for a child this young would not trigger the infamous “kiddie tax” unless the child had other investment earnings. Under the kiddie tax, starting at age 14 and up to 23 for dependent college students, investment earnings including interest and cap gains is tax free up to $900 and the next $900 is taxed @ 10%. Non earned income including IRA distributions IN EXCESS of those amounts are taxed at the parent’s rate. Therefore, if you take out larger amounts at college age, you will trigger the infamous kiddie tax on much of it.
What you might consider is taking larger distributions prior to age 14 and those will be taxed at the child’s lower rates, and deposit the after tax remainder in a Sec 529 account. Earnings in a 529 when used for qualified higher education expenses are tax free, and the kiddie tax would not be an issue, since the remaining amount of the RMDs in the inherited IRA would not be large enough to trigger that tax. A 529 account is also considered an asset of the parent, not the child for purposes of education aid. This is just one idea to explore, there may be others based on your facts and circumstances. I believe the inherited IRA is considered an asset of the child and would impair the aid calculation.
You should also check if your Aunt had any tax basis in her IRA, and of course to be sure it is a TIRA and not a Roth IRA. If there is basis in her TIRA, part of each distribution would be tax free based on how much each daughter inherited from her total basis. The Aunt’s tax preparer should be able to confirm if there is any basis from looking at her recent returns for Form 8606 which would show the amount of remaining basis inherited proportionately by beneficiaries. Finally, a successor beneficiary should be named on each inherited IRA account ASAP.