IRA distribution that was inherited

[taxmom34]

my sister died feb 2017, her 3 daughters inherited her IRA. have advised them their options but I have a question on the 5 year option. do they each have to take out rmd or just one of them each year .

[Burke]

Each should have a separate IRA under their name and SSN. Each is subject to all the RMD rules and time frames. You did not say whether your sister was already receiving RMD's herself.

[taxmom34]

yes she was receiving RMD, she was 78. are you saying that they each need to open a separate IRA account, I thought they could leave it where it was and either withdraw rmd each year or the years they choose to take a distribution.

[Roland Slugg]

[I] have advised them [of] their options but I have a question on the 5 year option.

Based on what you wrote (quoted above), it appears you may have advised your three niece's incorrectly. The 5-year option never applies if an IRA owner dies after his/her required beginning date.

I agree with Burke's reply. The three benes should ask the trustee to bifurcate (divide) the IRA into three new accounts, one for each bene for her respective share of the total. Once this is done each of them can leave her share there, or she can transfer it elsewhere via a trustee-to-trustee direct transfer. An inherited IRA can not be rolled over by passing the funds through the beneficiary's hands. Nor can it be commingled with the bene's own IRA.

You may wish to suggest to each of your niece's to read the applicable portions of IRS Pub 590-B, especially the section on inheriting an IRA, on page 4, as well the section on "IRA Beneficiaries" starting on page 8 and continuing for several pages after that. You may also wish to review that Pub yourself to refresh your own understanding of the rules.

There is one related matter to be faced this year: If your sister did not take her 2017 RMD before she died, it must be distributed by December 31, 2017. The easiest way to do this would probably be for her three daughters to take it themselves ... one-third to each, or in some other allocation. Just keep in mind, however, that the 2017 RMD must be based on your sister's life, not her daughters' lives. The daughters' RMDs must start in 2018 ... the year after the IRA owner's death ... and those RMDs will be based separately on the life expectancy table for each of the benes.

[Burke]

I agree. I have found in the case of a deceased IRA owner who has not yet received the RMD for the year of death, that the custodian will usually process that RMD withdrawal to the estate prior to separating the account into each named beneficiary's pro-rata share account. You need to have the bene's contact the custodian (bank/insurer) to notify them of the date of death, and for the necessary forms to sign that they may require for all this.

[taxmom34]

thank you for helping me realize there's more to this than I thought. I know I can always get help from fellow practitioners to straighten me out. again thank you