Inherited IRA Annuity

[geekgirldany]

I have a customer that brought by a letter regarding a Inherited IRA. It states that she may have to do a required withdrawl by 2008 and calls it a RMD.

Now this IRA was from her uncle who died about 4 or 5 years ago. I am assuming since her name is showing on the account and not her uncles that she rolled it over into a Beneficiary IRA. If I read the TTB correctly and some posts here she has/had two choices:

1. She could have taken the amount over her lifetime by looking up a percentage on a table. This had to be done the year after he died.

2. She has to take the whole amount out by the end of 5 years. If this is done there is no penalty.

I think her only choice is number 2. I want to make sure before I call and let her know.

THank you

[joanmcq]

If the IRA was retitled as 'IRA uncle (deceased) fbo client' then it is a beneficiary IRA. She may be able to play catch up on her RMDs...I believe I have seen this option referred to on these boards before. Do a search under beneficiary IRA. If the amount is significant, and she can blame her not taking the RMDs on someone else (like advisor when she inherited it) she may be able to catch up the RMDs and maybe even get out of the penalty. Otherwise she is stuck with option 2.

[geekgirldany]

Thanks for answering. Actually it just has her name on it. The uncle's name is not on it at all. At the top of the letter it says 2008 Inherited IRA Annuity - RMD Notice.

[joanmcq]

Then she may not have rolled it into a beneficiary IRA; is it still sitting in the uncle's?

[Jesse]

I also think she's stuck with option 2.

Is she qualified to open up an IRA of her own? A tax planning option if she has earned income and is below the phaseout limit?

[geekgirldany]

Then she may not have rolled it into a beneficiary IRA; is it still sitting in the uncle's?

Well I gave her a call and she said that it had been at the bank as "Jane Doe Beneficiary For Uncle's Name". It wasn't earning anything there so she moved it to another investment company. She said that was done two years ago. I looked back at the year Uncle passed away. She received a 1099R with a Code 4. I'll have to do a little more research and see what is what that was from. I am not sure if that 1099R was related to a IRA.

I am also going to call the adviser at the investment company the IRA is now at.

[geekgirldany]

I also think she's stuck with option 2.

Is she qualified to open up an IRA of her own? A tax planning option if she has earned income and is below the phaseout limit?

I had thought of that Jesse. I believe it may phaseout out though because jointly with her husband they make a good bit.

[geekgirldany]

I need a little more help. I got a mail today from the advisor that says my customer has been taking RMDs for 2006 and 2007. Only thing is I looked back at the tax returns and I don't have anything from the company showing this. Unless these IRAs are treated differently... I believe my customer should have received 1099R for these years. Is that correct?

[newbie]

I'd say you're correct, 1099R's should have been issued. Check with the advisor to see if they were issued and to what address. I'd also say it would be really weird if company did not issue one. I had a really strange one that had their own company's address as the clients address.

They went to Liberty Tax Service and told them "this was inherited money", so they assumed no 1099R - no tax...............until................the got a nice letter from the IRS that said this was reported to us but you only reported this...............they then called me and said HELP! The 1099R ended up in companies vault as "undeliverable".

[geekgirldany]

Well that is what I thought too. Unless I made a big mistake and missed the 1099R. But for two years? I should not have done that.

[joanmcq]

That is a beneficiary IRA. It sounds like she took the RMD for the first year at least. When she moved it, was it titled correct? ie. Jane Doe beneficiary, Uncle Doe (deceased) or Uncle Doe (deceased) FBO Jane Doe?

[geekgirldany]

She said when it was at the bank it was Jane Doe beneficiary, Uncle Doe (deceased). Now I believe it just has her name on it. Or atleast the letter does. The first year to take out RMD was 2003. The uncle died in 2002. So as you said before will probably have to play catch-up. I still can't understand why there isn't a 1099R for 06 and 07. As Newbie said something strange may have happened with it.

[Jesse]

Maybe it incorrectly remained in her Uncle's name with the 1099R's mailed to Uncle and possibly returned to the issuer as undeliverable? Something just does not sound right.

[geekgirldany]

That is a possibility. I called the customer and she said she did not remember getting it. This investment company usually puts everything related to a client in one mailing. So it should have been in that. Advsior is checking on it.