Inherited IRA

[JoshinNC]

Just want to make sure I explain this to the client correctly, so wanted to run it by you fine folks first.

Client is the spousal beneficiary of a traditional IRA that the IRA account owner was taking RMD from. The owner died at age 91 in 2005, my client was age 61 at the end of 2005 (no jokes please, they were married for 26 years). Custodian of the IRA was not informed that owner died in 2005 and therefore issued 1099R for RMD for 2006 in owner's name. We contacted custodian and informed them that owner died in 2005 and we need the 1099R reissued based upon our choice of how to treat the beneficiary. This is where I want to make sure I know what I'm talking about.

Option 1 - My client cashes in the IRA, pays tax but no penalty, account is closed

Option 2 - My client can elect to take the full value at some point by the end of 2010 (5th year following death of owner) with tax on distributions in years they are taken, but no penalty, account is closed

Option 3 - My client makes the IRA her own IRA, must take RMD based on her life expectency

Option 4 - My client rolls the IRA into her own IRA, must take RMD from the rolled portion based on her life expectency

Option 5 - My client leaves the account as is, must take RMD based on her life expectency

If there are any holes in this let me know, PLEASE! We only have one chance to get this right.

[Bill Tubbs]

doin' good

Josh,

I'm far from an expert in these matters, so I grabbed Pub 590 and read through the pertinent sections. What you stated is how I would handle it.

Bill

[JoshinNC]

OK, one down.

Anybody else have any ideas. Come on folks, you don't have anything else to do today (at least that's what our clients think, huh?)!

[Roland Slugg]

Okay, no jokes ... but I am impressed

Dear JoshinNC

Were you asking if the options you listed were all viable, or which one is best?

In any case, an IRA beneficiary who is a spouse is entitled to roll her husband's IRA into her own (or a newly established one in her name), where she will then have all the options she would have if it were always hers. This is the best choice, as it retains ALL the options. Several of the others you listed are needlessly limiting. Since she is now over 59-1/2, she will pay tax but no penalty on amounts withdrawn, if any, and since she won't be 70-1/2 for about 9 more years, she won't be required to take any distributions until she is.

[JoshinNC]

What about the fact that the deceased husband was taking RMD

Is she not required to continue those payments, even if she rolls it into her IRA? That's where I was getting a little confused, and your comments have helped to indemnify that confusion.

[George Boutwell]

Follow the money

==Custodian of the IRA was not informed that owner died in 2005 and therefore issued 1099R for RMD for 2006 in owner's name.==

If they issued a 1099R, they also sent a check. Who cashed it?

And was the 2005 RMD made before he died? One would think that whoever prepared the 2005 return would have spotted this issue.

[JoshinNC]

Don't know whether the 2006 RMD was a check or direct deposit

I've already found 2 errors in the work of the estate attorney and the CPA who prepared the estate return, so anything's possible. As for the 2005 distribution, I do think it was made prior to his death.

Is she required to continue the RMD if she rolls into her IRA?