Slott Report Mailbag: Are Beneficiary IRAs Treated Separately for Pro-Rata Rule?

By Joe Cicchinelli, IRA Technical Expert

Follow Me on Twitter: @JoeCiccEdSlott

This week’s Slott Report Mailbag includes a couple of detailed questions about the handling of retirement accounts after death. As always, we stress the importance of working with a competent, educated financial advisor to keep your retirement nest egg safe and secure. Find one in your area at this link.

1.

My father recently passed away with an IRA at a credit union in three CDs. My mother is the sole beneficiary. They are both on an automatic RMD (required minimum distribution) plan that takes the distribution in mid December of each year. The credit union plans to transfer my Dad’s CD amount to one of my mother’s CDs and to take the RMD for both accounts from her IRA (contains five CDs in same credit union plus the addition of my Dad’s) in mid December this year as always. Is there any problem with doing it this way? I wanted to be sure that there will be no problems because my Dad’s IRA will not show an RMD against his Social Security number for 2014 even though the correct amount will be distributed from my mother’s IRA along with her own.

Thanks,
Jeff

Answer:
After your dad’s death, no RMDs should be paid using his Social Security number because the funds belong to the IRA beneficiary. Your mother can elect to treat your dad’s IRA as her own and then take his RMDs from her IRA.

2.

I have been told that Beneficiary IRAs are not pooled with other non-Roth IRAs when it comes to the pro-rata rule on Roth conversions because the Beneficiary IRA is considered to still be in the name of the decedent. Is this true? I believe the source on this came from Natalie Choate.

Dale

Answer:
Yes. Beneficiary IRAs are treated separately for purposes of the pro-rata rule from your own IRAs. Roth IRAs are treated separately from your own IRAs as well as any beneficiary IRAs.