Stretch IRA
My wife is a beneficiary to her mother’s Traditional IRA. Her mother recently passed away. I understand the IRA proceeds can be passed through to my wife’s IRA as a beneficiary IRA. What would be the correct wording to have the IRA passed so that there will not be any tax issues? Also from what I understand certain annual distributions will need to be taken based on my wife’s age. She is now 61. Are the these based on a table? Thank You.
Permalink Submitted by Alan Spross on Sat, 2011-12-03 01:34
Your wife should have the IRA re titled showing both her name and her mother’s, eg “Ann Smith as beneficiary of Ruth Smith”. Your wife’s SSN goes on the account. Once the account is created, the only way she can move it to another custodian is by a direct trustee transfer. She cannot roll over any check made out to her.
Of course, she should also name her own successor beneficiary on the account ASAP.
Her first RMD is due by the end of the year following the year of her mother’s death, so that is probably 12/31/2012 for her first RMD. However, this year your wife must take out her mother’s RMD for 2011 to the extent her mother did not distribute it before passing.
For your wife’s own RMDs, she will be 62 next year I assume. Therefore, she would divide the 12/31/2011 account balance by a divisor from Table I in Pub 590. Her divisor for next year will be 23.5 (for age 62). She never has to check the table again, just reduce the divisor by 1.0 for each year thereafter. Her 2013 RMD divisor will therefore be 22.5 and be applied to the 12/31/2012 balance.
She should also check to see if her mother had any basis in her IRA from non deductible contributions. If so, your wife inherits the basis that is left and that would make some of her RMD amount tax free. Her mother’s last couple tax returns should be checked to see if there is a Form 8606 attached. That form will show how much basis was left in the IRA, if any.
The most important thing of all is not to take a distribution thinking she can roll it over, because she cannot and the entire distribution would be irrevocably taxable. See comment on direct trustee transfer above.
Permalink Submitted by Anonymous (not verified) on Sat, 2011-12-03 05:23
Then proper wording on the inherited IRA, for example if Ann Smith is the beneficiary of an IRA, would be
“Ruth Smith deceased IRA F.B.O. Ann Smith”. Is that correct?
Permalink Submitted by Alan Spross on Sat, 2011-12-03 22:15
The order of the parties does not matter as long as both the decedent and the beneficiary are identified in the registration. Some IRA custodians prefer one order over another, but the IRS does not care which shows first.