An inherited IRA

[Guest AngelaK]

My aunt, age 81, passed away and had left her traditional IRA

to four children under the age of 13 (her greatnephews, and

greatgradnephews), I am the trustee.

She was receiving distributions based on her life expectancy,

as she had inherited this IRA from her deceased husband.

Our tax accountant is checking on the way it would be most

tax effective to transfer to kids. I've been reading on this subject and there are so many rules and regulations it's confusing. Our

financial advisor is taking care of the paperwork to do the transfer, but I'm afraid he does not know all the ins and outs.

Can we establish IRA's for the children as Inherited IRA's?

If so, at the time of transfer is the amount taxable? or can

we elect to receive distributions based on each child's life

expectancy, and only be taxed for that amount?

The financial advisor indicated we could take the 5 year depletion rule, but it is my understanding that only applies to a surviving spouse. Is this correct?

Would appreciate help.

:confused:

[BPickerCPA]

I get the impression from your post that between you, your tax advisor and your financial planner, there is a lot of MISinformation about inherited IRAs.

I STRONGLY suggest that you do NOTHING right now, until you can have a consultation with a KNOWLEDGEABLE pro who can steer you in the right direction. The wrong move will probably NOT be correctible.

[Bruce Steiner]

Where is the lawyer who is handling the estate? That's what he/she is getting paid for.

[Guest Taxwoman]

AngelaK,

If the children are the designated beneficiaries, then 'yes' inherited IRAs may be established in the Tax Id number of the children. The inherited IRAs should retain the name of the deceased for tax reporting purposes. An example of an inherited IRA title is; IRA FBO Jane Doe/ ABCSC Custodian/ B/O Mary Doe (Dec'd)/ Ann Doe Guardian)

-Jane being the beneficiary

-Mary the deceased and

-Ann the guardian. Ann is only required because Jane is a minor.

At the time of the transfer, the transaction is NOT taxable

(Assuming Mary died last year or this year)…If the beneficiaries set up separate accounts by 12/31 of the year following the year Mary died, then they are each able to use their single life expectancy to calculate post death distributions.

There are other factors to consider, such as:

-Did the deceased take the RMD for year of death before she died?

-If the deceased died before year 2000, it get very complicated and specific information would be required to determine the beneficiary options. Let me know if she did, and I will provide you with the list of what is required.

Note: The concept of 'inherited IRA' just means that the IRA owner died and the IRA assets now belong to the beneficiary/ies.

However, some IRA custodians, for tax reporting purposes have designated IRA plan types as inherited IRA. This helps the beneficiary to make the proper elections on the IRA adoption agreement. Don't get frustrated if someone tells you there is not such thing as an 'inherited IRA'

Barry and Bruce is right. This is a complex matter- you must ensure that you obtain competent tax professional assistance

[Guest AngelaK]

Thank you for your replies. Mary, my aunt passed away 08/29/01, and she was receiving distributions. Latest info from financial advisor is that distributions for this year (the year of her death) have to be completed. The children, as beneficiaries, will get their distribution based on their life expectancy.