Is it required that an inherited IRA be distributed to beneficiaries o

[R. Butler]

Can a non-spousal beneficiary simply maintain the inherited IRA in the name of the decedent without taking a distribution thereby avoiding a taxable event? I believe the answer is Yes, just hoping for some verification.

[Dave Baker]

Sure can.

Check to be sure there isn't any language in the particular IRA agreement that requires beneficiaries to take a distribution, though. But it wouldn't be very smart for a financial institution to require assets to leave the door any faster than the law requires.

The law does require the beneficiaries to make withdrawals (causing ordinary income tax to the recipient beneficiary) at a certain minimum rate, though. This should be described in the IRA agreement. Basically you're looking at two sets of rules: one applies if the IRA owner had reached April 1 of the year that followed the year in which he or she attained age 70-1/2 (six months after the 70th birthday); the other applies if death occurred before that April 1 (the "required beginning date").

When did the IRA owner die -- before or after the required beginning date?

[Mary Kay Foss]

Dave gave you the right answer but I just wanted to make one additional point. If the beneficiary does not take out the minimum distribution each year as required, there is a 50% penalty. Proposed legislation would bring this down to 10% but it's still an important issue.

Also if the IRA owner died before his Required Beginning Date the beneficiary may have to make an election between life expectancy and a five-year payout. The election must be made before 12/31 of the year after the death.

Dave gave you the answer, the plan should tell on what basis the distributions are made.

[Guest Paul Leslie]

The key point that was brought up was "did the deceased IRA owner begin minimum distributions?" The will limit your options right away to either what Mary or Dave said. Then you can look at the plan.

If the plan has terms that you don't agree with you can rollover the IRA into a new IRA with a new trustee with the terms you like but it must be kept in the name of the deceased IRA owner's name. THAT IS NOT THE SAME AS ROLLING IT OVER INTO YOUR OWN IRA. ONLY A SPOUSE IS ALLOWED TO DO THAT IF HE OR SHE CHOOSES TO.

[John G]

Is the issue if the person started to take the distribution or if they should have started to take the distributions? I don't know the answer, but it is the kind of techinical issue that would suggest that you get professional assistance and not treat this as a do-it-yourself issue.

[BPickerCPA]

To clarify Paul's comment, you can only move the IRA assets in a trustee to trustee transfer. You CANNOT do a rollover. Once the custodian issues a check, the IRA is dead. No 60 day period to put it back.