The Headaches of IRA Transfers, Rollovers, and Unclaimed Property | Ed Slott and Company, LLC

The Headaches of IRA Transfers, Rollovers, and Unclaimed Property

By Jeffrey Levine, Director of Retirement Education  
Follow Jeff on Twitter: @IRAGuru4EdSlott

This week's Slott Report Mailbag looks into IRA transfers, unclaimed property, and IRA rollovers. As always, we recommend you work with a competent, educated financial advisor to keep your retirement nest egg safe and secure. You can find one in your area here.

Question:

Dear Mr. Slott,

My father recently passed away.  I contacted the capital management company that held his IRA in order to find out how I can transfer the IRA to the surviving spouse.  The company told me that the funds were no longer at their firm because they were transferred to the PA Department of Treasury as unclaimed property.  I confirmed that the IRA money was at the PA Treasury Department as Unclaimed Property (they were transferred in May 2016).  My father took his RMD from this account in years 2012 and prior.  In 2013 thru 2016, we decided to take his RMD from other accounts which we are allowed to do.  This company did not do the proper due diligence before they liquidated my father’s IRA and transferred the funds to the State as Unclaimed Property.  Now my mother is faced with many tax and estate problems.  We need to probate a will, pay probate fees, file an inheritance tax form and file an unclaimed property form to obtain the IRA money (which can take up to 6 months to receive the check).   

Once we obtain the IRA funds from the treasury department could we roll them back into an IRA within 60 days (I don’t think we have this option but you may know some way around this terrible tax problem).  Otherwise, the whole IRA distributions will become taxable. 

Thank you in advance for your help.

Sincerely,

Distraught Daughter

 

Answer:

Dear Distraught,

First of all, please allow me to express my condolences for your loss. Unfortunately, escheatment (the technical name for what happened to your father’s funds) laws in many states, including Pennsylvania, have changed in recent years, making it easier for States to escheat taxpayers’ retirement accounts.

The good news is that, if you want to roll the funds back over into your father’s IRA, there’s a good chance that you may be able to do so. The bad news is that the only sure way to make sure the IRS will accept the rollover is to seek a private letter ruling (PLR) from the IRS “blessing” the transaction. PLRs are time consuming and expensive, but if your father’s IRA was large enough, it could be worth it. There’s one other complication here… since your dad died while the funds were outside the IRA, the likelihood is that even if the IRS allowed you to rollover the funds, they would not treat any beneficiaries of the account as designated beneficiaries.

This is really a situation that needs to be resolved with the help of someone who lives and breathes this stuff. Hopefully the information above can help you get started down the right path, but this is something that should be investigated further with a qualified professional.

 

Question:

Hi Ed Slott and Company,

I’m a big fan of your emails that discuss IRAs.  I’ve got a question that I’d like to see if you would answer and maybe feature in one of your emails!

Client of RMD age inherited a 403b from a spouse who passed away at age 65.  At the beginning of the year, he confirmed that he did NOT have to take an RMD from the inherited 403b because his spouse was not of RMD age.  Half way through the year, he rolled the inherited 403b into an IRA in his own name.  Does this change mean that he now has to satisfy an RMD this year?  If he is required to take an RMD, how it is calculated?  Or do RMDs pick up in 2017?

Thank you!

Ryan

 

Answer,

Ryan,

There is no RMD for 2016 based on the inherited amount. That amount wasn’t in your client’s account as part of the prior-year-end balance. Beginning in 2017, your client will have RMDs calculated as if the amount in the IRA was always his.

 

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