When my grandmother died, she had a 403b plan and a qualified pension plan from her municipality (she worked in the public school system). My mom and my uncle were her only beneficiaries. My grandmother never actually retired from the school system - she passed away while on leave of absence.
My mom opened an inherited IRA at a brokerage firm to receive her portion of 403(b) distribution - this was easy since the entire amount was considered a taxable distribution and since my grandmother never actually retired and was still working for the same organization that sponsored her plan, she never actually hit her required begin date for RMDs (even though she was 88).
My question is around the pension plan distribution - as it turns out, some of the distribution is taxable (pre-tax contributions that my grandmother made, as well as the investment income earned from those contributions), but some is not - particularly the post-tax contributions that my grandmother made (the municipal system requires employees to contribute pre-tax and post-tax to the system for a number of years to "pay into" the pension; after that, you're fully vested and your contributions are used to grow the fund to fund your retirement benefit), as well as the term life insurance benefit that is paid when a member of the system passes away.
When all of the paperwork was submitted to the municipal system, it was unknown at that time that 2/3 of the distribution from the pension plan would be non-taxable; all of the paperwork seemed to indicate that most of it would be taxable. As such, the paperwork was completed to send the funds to the Inherited IRA at the brokerage firm.
If the municipal system sends one lump sum check for the whole amount to the brokerage firm for deposit into the already existing (and properly titled) Inherited IRA, can my mom withdraw the non-taxable funds (post-tax contributions + life insurance proceeds) without incurring additional tax? I understand she would still have to take an RMD based on the remaining taxable funds, but the basis would be significantly lower without the non-taxable funds in the account.
Any advice is appreciated.