Inherited IRAs

[Guest msprice]

I have a client who died 7/15/06. She was 85 years old and left three (3) siblings as beneficiaries. I have attempted to answer the following questions posed to me by her CPA. Can someone confirm or guide me to the correct anwsers.

Many Thanks!

1. When must they transfer to Inherited IRA? No later than December 31, 2007. The end of the year following the year of the IRA owner’s death.

2. When must they take the first distributions from the Inherited IRA? By December 31, 2006. Since owner is receiving 70 ½ distributions a distribution must be taken for plan year ending 12/31/06 payable to each beneficiary.

3. Is a distribution required to be made to the estate for the deceased for year of death? Not required.

4. Can the inherited IRAs be annuitized over the respective lives of the three siblings?. Under the new Pension Protection Act, for distributions made after 12/31/06, a non-spouse beneficiary can rollover the IRA or take a lump sum.

[Bird]

1. When must they transfer to Inherited IRA? No later than December 31, 2007. The end of the year following the year of the IRA owner’s death.

I don't think that's true. The first death RMD is due by that date. The designated bene(s) is determined on Sept 30, 2007. If the benes want to each use their own life expectancies, then separate accounts must be established by 12/31/07. A separate account, if established, can be transferred to another IRA, which I've heard called a "beneficiary payout" IRA and I assume that's what you are calling an "Inherited IRA." But there's no requirement to transfer anything anywhere, just a requirement to start taking money out of the decedent's IRA.

2. When must they take the first distributions from the Inherited IRA? By December 31, 2006. Since owner is receiving 70 ½ distributions a distribution must be taken for plan year ending 12/31/06 payable to each beneficiary.

A lifetime distribution (the last one) must be taken by 12/31/06. If the decedent hadn't already taken it by the date of death, it would still be calc'd as a lifetime distribution but paid to the bene(s). As noted above, post-death RMDs must be taken starting in 2007.

3. Is a distribution required to be made to the estate for the deceased for year of death? Not required.

See above. A distribution is required in the year of death, payable to benes if not already taken.

4. Can the inherited IRAs be annuitized over the respective lives of the three siblings?. Under the new Pension Protection Act, for distributions made after 12/31/06, a non-spouse beneficiary can rollover the IRA or take a lump sum.

I have been assuming that the decedent owned an IRA and this is not a pension distribution. PPA didn't change anything about this situation, just allowed a non-spouse bene to roll from a plan to an inherited IRA. Siblings can annuitize over their own life expectancies if separate accounts are established before 12/31/07, otherwise the oldest life expectancy is used.

[Guest msprice]

Bird - Thank you very much!