distribution IRA

[TAX4US]

TP had regular IRA's and Roth IRA's. TP did not have beneficiary on any of the IRA's. TP died. TP has no spouse. Question is Does the estate of deceased have to cash them in or can they be passed out to an heir? What do you think?

[Nashville]

Any beneficiaries

Taxes 'R Us, are there no beneficiaries at all to his other property? If so, the probate court would have to award the IRA to someone (absent any agreement among the beneficiaries to a settlement).

If there is no trail to any beneficiaries at all, it would appear to me that the IRA would become property of the state under escheat laws.

[TAX4US]

There are no beneficiaries on anything.(strange that the bank let tp do this) Will passes everything to one of the children and nobody else. My assumption is that the estate must cash in these IRA's within 5 years, however since 1 child to get everything I don't think Executor will keep estate open that long.

[Roland Slugg]

Does the estate of deceased have to cash them in or can they be passed out to an heir?

No, the estate does not have to cash them in ... at least not right away.

The timing of distributions depends on whether or not the IRA owner had reach his RBD ... i.e. April 1st of the year after reaching age 70½. If he had not reached his RBD, the "5-year rule" applies, and all the funds must be distributed NLT the end if the fifth year after the year of death. If he had reached his RBD, the RMD is based on the owner's age as of his birthday in his year of death, and the initial divisor is based on the "Single Life Expectancy" table. The first RMD must be made NLT December 31st of the year after the decedent's year of death, and the divisor is reduced by 1 each year after the year of death. Example: IRA owner died on July 10, 2015, and he would have been 79 on September 15, 2015. The life expectancy, from the single life expectancy table, is 10.8. The RMD for the year 2016 is based on a divisor or 9.8 (i.e. 10.8 minus 1), for 2017 it is 8.8, and so on. In this example the IRA will be completely paid out by the end of the tenth year after the year of death.

All of this (and a lot more) can be found in IRS Pub 590-B, which is available at https://www.irs.gov/Forms-&-Pubs
The pages most relevant to you are probably pp.8-10.

Now, even though the IRA didn't have a named individual as beneficiary, the decedent's estate did ... one child, according to your second post. That child can not "retroactively" become an individual beneficiary of the IRA. That beneficiary was, and will remain, the Estate. However, since the child is the beneficiary of the Estate, the IRA trustee(s) should do one of two things: (1) Leave the IRAs in the name of the original owner, noting that the owner has died and that "Child X" is the bene of the decedent's estate, or (2) re-title the IRAs (traditional and Roth) as "Estate of (Decedent), Child X, Beneficiary." Either way should allow that child to take distributions, since he will be required to do so. I'm not sure how IRA trustees handle this situation, but I'm sure they do, because they probably encounter it fairly often.

Added note: If the IRA owner had named an individual as his IRA beneficiary, that person could use his own age, instead of the decedent's age, when finding the starting divisor from the beneficiary's table. If the decedent's beneficiary was, say, a 52-yo individual, the starting divisor would be 32.3 instead of 10.8 ... quite a difference!

[TAX4US]

How does this sit with what is being suggested. Deceased TP had already began his RMD's. as required.

"One notice I saw is that the estate(executor) can name a beneficiary and thus pass this IRA on as long as done by September of year following the year of death? This would give a longer life span to RMD it out if I read this rule correctly. tax-book pages 13-24 and 13-25. Or am I way off base?

[Burke]

"One notice I saw is that the estate(executor) can name a beneficiary and thus pass this IRA on as long as done by September of year following the year of death? This would give a longer life span to RMD it out if I read this rule correctly. tax-book pages 13-24 and 13-25. Or am I way off base?

TB 13-24 certainly states that the estate can designate "one of the estate beneficiaries" as the designated beneficiary of the IRA by Sept. 30 following the year of death. I cannot find exact wording to this effect in 1401(a)(9)(-4). There is much reference in that section to beneficiaries "designated in the plan." I would start by having the executor contact the custodian or issuer of the IRA and finding out if this can be done directly. I have dealt with many estates to which IRA's were paid to the estate because no beneficiary was named (or living), but none that directed those funds be paid to a certain beneficiary.