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Question for the Money Doctors

Question submitted on Oct 12, 2017.

Question

My uncle passed and his estate was named as beneficiary of his IRA. I am the sole beneficiary of his estate.
Is it acceptable for me to take a check from the estate checking account in the amount of the final IRA distribution and use it to open an inherited IRA account in my name?

Answer

At times when an estate is named as beneficiary of an IRA, the IRA is payable to the owner's estate unless the account agreement provides otherwise.  The decedent’s will determines how property passes as opposed to the IRA assets transferring to a beneficiary directly.  

The estate will first need to set up the inherited IRA with the appropriate registration/titling.  Prior to when the estate is ultimately closed, which could be up to a year or more, generally the recommendation is to initiate a direct trustee to trustee transfer of the inherited IRA.  The inherited IRA within the estate would then be transferred to a new inherited IRA FBO (for the benefit of) each estate beneficiary.  If the IRA is liquidated instead into an estate bank account, a taxable transaction may occur depending on who the beneficiaries are (I.e. charities vs. individuals), which can be costly and is irreversible.  

Once the inherited IRA FBO beneficiary account(s) are open, you may want to consider seeking a CPA financial planner to determine when required minimum distributions (RMDs) should be taken from the account.  If the transfers, account set ups, and registrations have occurred properly, the inherited IRA should reflect your uncle as the decedent and you as beneficiary.  This generally would allow your RMD to be based on your age instead of his, allowing more flexibility in reducing your taxable income from the account.


For additional information visit http://www.360financialliteracy.org/

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