Non spouse beneficiary rollover

Submitted by ellyn sosin on Thu, 2012-04-26 20:01

A client of mine (before she was a client of mine) was the non spouse beneficiary of her Aunt’s IRA. MetLife issued a check payable to her jointly with Morgan Stanley Smith Barney (MSSB) at MSSB address and deposited it into a correctly titled MSSB inherited IRA from the same Aunt, properly titled last August 2010, within 7 days. This was not wired trustee to trustee, is this a properly executed IRA rollover or are these funds have to be withdrawn subject to penalties?

Ellyn Sosin CPA



Submitted by Alan Spross on Thu, 2012-04-26 21:03

There shoudn’t be a problem as long as Metlife does not issue a 1099R for this required direct transfer. Even if MSSB did not title the IRA correctly initially, that would also be OK if subsequently corrected. But a 1099R would require the client to report a rollover and since a non spouse inherited IRA distribution is not eligible for rollover, the IRS would assume a taxable distribution.



Submitted by ellyn sosin on Fri, 2012-04-27 18:09

Alan, I am sorry that I left out that MetLife did issue a Form 1099-R with a 4 code (death). You hit the nail on the hit. I thought a trustee to trustee rollover is not taxable for a non-spouse beneficiary? It was always in a correctly titled account at MSSB.



Submitted by ellyn sosin on Fri, 2012-04-27 18:13

This is from the FAQ section…..so isn’t a trustee to trustee rollover to the inherited account from MetLife to MSSB a non taxable event?

I just inherited an IRA from someone who is not my spouse. What do I do now?

You will have to check with the IRA custodian to see what your options are under each IRA account you have inherited. Custodians can limit your options.

Under the tax code, any living beneficiary that is named on the beneficiary form can stretch distributions over their life expectancy. In order to do this you must first establish a properly titled inherited IRA. The title MUST include the name of the decedent. For example: John Smith, deceased, IRA for the benefit of Mary Jones. Then the funds are transferred, ONLY as a trustee-to-trustee transfer, to the inherited account. Any distribution that is payable to you will be taxable and will not be eligible to go into any IRA account.

You should than name your own successor beneficiaries, if the IRA custodian allows this, and you will have required distributions beginning in the year after the account owner�s death. Any required distributions that are missed will be subject to the 50% penalty and are reported by the beneficiary on Form 5498 for the year the distribution was missed.



Submitted by Jose Morales on Fri, 2012-04-27 18:32

I’m a stickler for using the appropriate terminology, to the point that I’m sure I annoy many that have to deal with me. The terms Rollover, Transfer, and Direct Rollover cannot be interchanged.

A non-spouse benefiary has absolutely no ability to complete a rollover of the funds from the deceased’s IRA to a beneficiary IRA. The only option available to a non-spouse beneficiary for this is a non-reportable IRA to IRA transfer.

So the real question here is what prompted MetLife to issue a check? Did the beneficiary ask to withdraw the funds themselves and complete a distribution form? If so, this could be a very expensive mistake. If Morgan Stanley sent MetLife a Transfer Request and the check was then sent directly back to Morgan Stanely, then you need to speak to someone very knowledgable with IRA regulations at MetLife. Have them gather all of the documentation, especially the Transfer Request received from Morgan Stanley, and it should be clear to them that they made a mistake which they will have to correct by submitting a corrected 1099-R to the IRS.



Submitted by Jose Morales on Fri, 2012-04-27 18:35

Also, there is no such transaction as a Trustee to Trustee Rollover and the use of this term is exactly what leads to so many errors such as the one described here.



Submitted by ellyn sosin on Fri, 2012-04-27 19:17

urusei2 – can you call me, I would be willing to pay you for your time. Thank you.

Ellyn A. Sosin, CPA
516-570-4600 x 221



Submitted by Bruce Steiner on Fri, 2012-04-27 20:43

A beneficiary of an inherited IRA can move it from one custodian to another. This is a trustee to trustee transfer. It remains an inherited IRA with the new custodian. There have been numerous private letter rulings on this point, all of which cite Revenue Ruling 78-406 as authority. You can find them by searching under 78-406 in a PLR database.

As urusei2 pointed out, it would be helpful to look at the paperwork to see exactly what the beneficiary requested.

Bruce Steiner, attorney
NYC
also admitted in NJ and FL



Submitted by Jose Morales on Fri, 2012-04-27 21:26

[quote=”[email protected]“]urusei2 – can you call me, I would be willing to pay you for your time. Thank you.

Ellyn A. Sosin, CPA
516-570-4600 x 221[/quote]

I can’t accept payment, but I’m willing to point you in the right direction. When is a good time to call?



Submitted by Denise Appleby on Sun, 2012-04-29 10:36

This may now be complicated by the 6% excise tax that applies to an ineligible rollover. And it raises the question of how the receiving custodian coded the receipt of funds; that is, did they code it (treated it) as a rollover or a transfer? A 1099-R without a corresponding 5498 might (should) raise questions from the IRS, unless the amount was reported as nontaxable distribution- which should not be the case here.
Also, in the FAQ posted above, I think the custodian ( if it is theur material) meant to say 5329 and not 5498.



Submitted by ellyn sosin on Fri, 2012-06-01 16:35

[quote=”[email protected]“][quote=”[email protected]“]urusei2 – can you call me, I would be willing to pay you for your time. Thank you.

Ellyn A. Sosin, CPA
516-570-4600 x 221[/quote]

I can’t accept payment, but I’m willing to point you in the right direction. When is a good time to call?[/quote]

I called MetLife as you suggested and YOU WIN, they issued an incorrect Form 1099-R and reissued it with a code 4with nothing in box 1 and box 2a and the corrected box is checked!! Thank you, thank you, thank you. I no longer need to speak with you, and so appreciate your help!



Submitted by Jose Morales on Fri, 2012-06-01 16:42

[quote=”[email protected]“][quote=”[email protected]“][quote=”[email protected]“]urusei2 – can you call me, I would be willing to pay you for your time. Thank you.

Ellyn A. Sosin, CPA
516-570-4600 x 221[/quote]

I can’t accept payment, but I’m willing to point you in the right direction. When is a good time to call?[/quote]

I called MetLife as you suggested and YOU WIN, they issued an incorrect Form 1099-R and reissued it with a code 4with nothing in box 1 and box 2a and the corrected box is checked!! Thank you, thank you, thank you. I no longer need to speak with you, and so appreciate your help![/quote]

I’m glad you were able to get everything straightened out!



Submitted by Robert J Morris on Tue, 2013-07-02 14:55

My wife”s mother passed. She has an IRA that will be passed on to my wife as a  beneficiary.How should this be handled. The IRA is being held in an Edward Jones account for her Mother ?



Submitted by Alan - IRA critic on Tue, 2013-07-02 17:00

She should provide a copy of the death certificate to Jones and request that the benefits be transferred to a correctly titled inherited IRA. The title must show the names of both her mother and your wife as beneficiary and will carry your wife’s SSN for tax reporting. If her mother had an incompleted RMD for the year of death, your wife should satisfy that RMD ASAP. Starting the following year, she will have to take RMDs using her own life expectancy (Table I in Pub 590). She should also attempt to determine if she inherited any IRA basis from her mother, and name her own successor beneficiary on the inherited IRA ASAP.



Submitted by Kathleen Covey on Thu, 2013-07-11 18:41

My client’s Father passed away – Father was not married – my client is the only child & the beneficiary of the estate. Father named his estate as the beneficiary on 2 IRA accounts held at a bank.  The bank will only issue a check to the estate.  Is there any way to handle this situation?  



Submitted by Alan - IRA critic on Thu, 2013-07-11 20:17

See your other post for response. The executor of the estate should be firm that they want to set up an inherited IRA account for the estate beneficiary and then do a transfer to that account. Banks are notorious for wanting to rush out a check to the estate to avoid potential complications such as estate disputes, multiple beneficiaries etc. A transfer of the IRA will allow the bank to eliminate those exposures with just a single transfer.



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