Multiple Beneficiaries - Single Beneficiary IRA?

[Guest AJ Milano]

I have a situation where an IRA owner is in payout status and dies. The account has 4 non-spouse Primary Beneficiaries. Two of the beneficiaries elect to take death distributions. The remaining two beneficiaries request that ONE Beneficiary IRA be open. (I do not know the reason why they and the advisor is insisting that One Beneficiary IRA be opened - They know that the RMD will be based on the Single Life Expectancy of the oldest beneficiary).

My question is:

1) Is this legal or does two separate Beneficiaries have to be opened?

2) Where in the Code and Regulations can I prove this?

Thank you in advance for your input.

Anthony Milano

[jevd]

There is nothing in the regulations that says individual accounts must be opened in this case. It may become an accounting problem keeping track of distributions to be sure they are distributed equally unless all checks are made payable jointly.

[Guest AJ Milano]

What about the multiple owner issue? In essence, the Beneficiaries become the owner of the Beneficiary IRA. I thought an IRA can only have one owner, therefore, whats the case when two beneficiaries elect to open up a SINGLE Beneficiary IRA. I see a problem here.

[jevd]

If the beneficiaries did not open an inherited IRA you would have a situation with an IRA FBO 2 beneficiaries. However, upon further consideration,I agree that opening a single inherited IRA for two individuals would be a problem.

Its just not addressed in the regulations.

[Appleby]

It appears to boil down to operational requirements of the financial institution. For instance, under the reporting requirements…

1) FMV/5498 reporting must be done for each beneficiary, showing the value of each beneficiary’s share of the inherited IRA assets.

Form 1099-R must be issued for/to each beneficiary that receives a distribution of the assets.

2 ) The inherited IRA must be maintained in the name of the deceased and the beneficiary, using the TIN of the beneficiary.

The question then becomes, “can the financial institution meet these reporting requirements if the assets are held in one account?" ... For the financial institutions that I am familiar with, their operational requirements necessitate separate accounts being established and maintained for each beneficiary. On the other hand, I understand that some financial institutions are able to maintain the assets in one account, but their systems are flexible enough to perform sub-accounting, which maintains the separating accounting of investments growth loss and tax reporting requirements.

You may want to ask the advisor whether and how these reporting requirements will be met.

Finally, you mentioned that “They know that the RMD will be based on the Single Life Expectancy of the oldest beneficiary”. I wonder why they would want to do that , when if the assets are put into separate accounts by 12/31 of the year following the year the IRA owner dies, each beneficiary is allowed to use his/her own life expectancy to calculate post-death distributions?

[Guest AJ Milano]

Thank you very much for your reply Appleby. In mentioning the reporting requirement of a Beneficiary IRA, you stated that:

2 ) The inherited IRA must be maintained in the name of the deceased and the beneficiary, using the TIN of the beneficiary.

Wouldn't this point towards "One Beneficiary IRA for two beneficiaries" not being allowed? Where can I find this reporting requirement in the code?

I have found that many non – IRA banking professionals think that just because the rules and regulations do not specifically state that something cannot be done, they mistakenly think that they are allowed.

If the rules and regulations are not clear that "One Beneficiary IRA for two beneficiaries" are allowed, I think the reporting requirement definitely is good backup.

I am interested in your thoughts and comments.

[Appleby]

You’re welcome AJ.

See The instructions for filing Form 5498 and 1099-R at http://www.irs.gov/pub/irs-pdf/i1099r.pdf

See Page 5 Beneficiaries. Here is states that the TIN of the beneficiary must be used. In most cases, the tax reporting is done under the TIN that appears on the account; therefore, the TIN should be that of the beneficiary’s

See also Page 12 “Inherited IRAs” and “Fair market value.”. They talk about the beneficiary’s form- not the deceased’s form. Which means that the information on the form must be that of the beneficiary, except where it is noted that the name of the deceased must be included.

If the advisor insists that the assets should be maintain in one inherited IRA for both beneficiaries, he/she they should be able to explain how they will meet these reporting requirements.

Please let me know if you need additonal information