Establishing an inherited IRA for a non-spouse beneficiary
Client died 08/31/2020. Company that Client’s IRA was with sent letter out 10/26/2020 saying beneficial/decedent IRA must be established by 12/31/2021, or else would have to distribute as a lump sum.
State of LA could not issue corrected death certificate until 06/30/2021. Client’s daughter, the beneficiary, not only dealing with mother’s death( my client), but also death of her husband just a few days before!
Is this rule correct? Never had this happen. Have had two other non-spouse beneficial/decedent IRAs established a few years after death of the IRA owner.
Permalink Submitted by Alan - IRA critic on Thu, 2022-04-28 00:22
If this is an IRA and contained this restriction in the beneficiary provisions, it would be very rare because IRA custodians normally cannot force out distributions. Actually, there are several downsides for the beneficiary not acting anyway, therefore it is counterproductive for the beneficiary not to submit the death certificate and the personal data to set up the inherited IRA as soon as practicable. Perhaps some custodian rep incorrectly indicated this policy because without a death certificate and personal info for the beneficiary, they can’t issue a distribution. And we are 4 months beyond their indicated deadline, so this might just be bad customer service. Perhaps an equally bad outcome would be for the daughter to fall victim to the state escheatment rules where the custodian distributes the account to the state and withholds federal taxes.
If mother passed after her RBD, the daughter will have to take annual life expectancy RMDs within the 10 year rule, then drain the account by 12/31/2030 as well. These dates remain in place whether the IRA is retitled or not. She needs to find the time to take care of this ASAP unless the balance of the inherited IRA is so small, she is willing to risk having it sent to the state. The amount of time needed to recover from any of these negative possibilities is far greater than just having the IRA properly retitled in beneficiary form.