Transfer from estate IRA to inherited IRAs

Submitted by Phil Troyer on Wed, 2019-03-13 21:27

We have a client whose father passed away without naming beneficiaries on his IRA. I have seen articles from Beverly DeVeny indicating the IRS allows an estate IRA to be transferred to beneficiary IRAs. However, the custodians are unfamiliar with this position. Does anyone have a citation to the IRS guidance on this point so I can share it with the custodians?



Submitted by Alan - IRA critic on Wed, 2019-03-13 23:30

  • Yes, the IRS has issued several letter rulings over the last 3 decades allowing the executor to assign the inherited IRA to the will beneficiaries or intestate law beneficiaries. Lower level clerks at this custodian may not be aware of this, but senior staff are probably well aware of it, but would prefer to simply make a lump sum distribution to the estate. This should be resisted, as it will end up with much higher taxes for the beneficiaries. 
  • Some IRA custodians just stonewall the executor with such tactics as asking for the executor to get their own PLR (which can cost nearly 20k), when they know the IRS has no issue with inherited IRAs for beneficiaries following executor assignment. It may be worth bypassing the front line people and just having the executor send a letter of instructions to the IRA custodian. In talking to the custodian, it may be worth it to reveal the number of such beneficiaries and if they will agree to transfer the inherited IRAs out. The custodians sometimes fear there could be dozens of will beneficiaries, risk of estate litigation etc, so assuring them there is no such problem might help.
  • Prior PLRs the IRS has approved to transfer from estate to inherited IRAs – 2002 34019, 2008 50058, 2011 28036.  After putting up a good fight to no avail, client might contact major IRA custodians where client may already have accounts and ask them to accept a transfer of the inherited IRA from the non cooperative custodian.


Submitted by Phil Troyer on Thu, 2019-03-14 18:36

Thank you VERY much.  Unfortunately, even the senior staff at some of the national custodians are unaware of these rulings.  Just as you predicted, the incumbent national custodian (ETrade) indicated it would not permit the transfer without a PLR.  We discussed the situation with another national custodian (Schwab), who indicated it could not permit a transfer into individual beneficiary IRAs if the funds had already be transferred into an estate IRA.  In this case, the taxes on a lump sum distribution would be approximately $400,000, so we are very appreciative of your knowledge and assistance.



Submitted by Bruce Steiner on Sun, 2019-03-24 02:32

  • Distributing the inherited IRA in kind won’t provide a longer stretch.
  • The estate could take distributions over the IRA owner’s life expectancy as of his/her death as if he/she hadn’t died (if the IRA owner had reached his/her required beginning date), or by December 31 of the 5th calendar year following the IRA owner’s death (if the IRA owner died before reaching his/her required beginning date).  In the latter case, by using a fiscal year, it may be possible to spread the distributions over 6 or 7 taxable years.  The estate can then make distributions or deduct administration expenses against them.
  • Whether it’s practical to keep the estate open depends on the length of time (and possibly other factors).  It shouldn’t be much extra work to keep the estate open until the end of the 5th calendar year following the IRA owner’s death.  The additional work would be the annual income tax returns, but those returns wouldn’t usually be difficult.
  • If it makes more sense to distribute the inherited IRA in kind, the executors could set up an inherited IRA for the estate, move it to an inherited IRA at a friendlier custodian, and then transfer the inherited IRA in kind at the new custodian.
  • The lawyer handling the estate should be able to assist with this.  This situation comes up from time to time.
  • Bruce Steiner


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