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I've read one or two conflicting opinions.

Retirement accounts are set up as TOD accounts, as is all property. No worries about the maximum estate, it's under the limits.

How are the TOD retirement accounts of the deceased treated when given to the beneficiaries, who are the adult children.
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Retirement accounts are set up as TOD accounts, as is all property.

Sez who? I've never seen one titled that way.

Phil
Rule Your Retirement Home Fool
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Retirement accounts are set up as TOD accounts, as is all property.

Sez who? I've never seen one titled that way.


just curious: what's "Retirement account"?
what's "TOD account"?
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Retirement accounts are set up as TOD accounts

'Retirement accounts' (i.e. 401(k)s, 403(b)s, 457s, IRAs, etc.) can be set up with beneficiaries, but are not generally considered 'TOD' (Transfer on Death) accounts.

How are the (deleted) retirement accounts of the deceased treated when given to the beneficiaries, who are the adult children.

Can be one of several ways, depending provisions of the plan (for those accounts that are part of a plan), and on how the beneficiary chooses.

- Withdraw all the money out in a lump sum, having to pay any income taxes due on the lump sum for the year withdrawn
- Take the money out over the course of 5 years, having to pay the income taxes due to the withdrawals for the year they occur
- As an inherited IRA with minimum required distributions starting the year after the date of death, having to pay income taxes for the year the witdrawal is made

If the beneficiary were a spouse (which you excluded by specifying the benficiaries were children of the deceased), the spouse may also have the option to roll the money over into their own IRA, and not be required to take distributions until they reach the age for MRDs.

You may want to look at IRS Pub 590 http://www.irs.gov/pub/irs-pdf/p590.pdf

AJ
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Thank you, hard to weed through the conflicting information I've seen elsewhere.

Yes, all of the accounts, even the rollover IRA, were set up and aptly named TOD and the beneficiary's names.

I didn't think there was an out from income taxes, Uncle Sam would never allow that ;)
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Yes, all of the accounts, even the rollover IRA, were set up and aptly named TOD and the beneficiary's names.

I hope your memory's faulty, because if someone somehow managed to set up an account that way it would likely work to the disadvantage of the beneficiaries.

Once again passive voice is driving me crazy. Are we talking about a real situation or a hypothetical? Also, are we talking about income tax or estate tax? I thought at first you were talking about estate tax, but your last post makes me think income tax.

If this is a real situation and you have access to the account papers go look at them. There should be no hint of "TOD" in the title of an IRA. If there is, you need to fix it.

Phil
Rule Your Retirement Home Fool
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0x6a74 I also did/do not have a clue what a TOD is. But Google suggests it is a Transfer on Death

Gordon
Atlanta
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I found this....

http://financial-dictionary.thefreedictionary.com/_/dict.asp...


no help-- sounds exactly like the way
IRA works (estate wise
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no help-- sounds exactly like the way
IRA works (estate wise


For estate tax purposes there's no difference between a TOD asset and an IRA. Both are part of the decedent's estate.

Neither is part of estate administration. Armed with the death certificate the beneficiary of a TOD account gets it retitled, and the beneficiary of an IRA chooses from the options aj mentioned earlier. Beneficiaries of employer plans (401(k)'s, etc.) may not have all those options, depending on the plan's rules. (See Pub 575 for those plans.) But in any event the decedent's personal representative never touches the money in her fiduciary capacity.

Phil
Rule Your Retirement Home Fool
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This particular account is a rollover IRA which originally came from a company plan years ago. It truly is a TOD account, Transfer on Death, now not hypothetical.

The TOD accounts do bypass Probate. TOD accounts also supersede anything contained within a Will. My unknown issue was income taxes, since the estate is not large enough to incur estate taxes. Now I know.

I have no idea how this account will be distributed, have to get in contact.

TOD accounts are a great way to avoid the messy probate process. It's efficient, and the administration is fairly cheap. It's also a convenient way to provide a certain amount to beneficiaries directly. For those with larger estates, there are far more options that can and should be looked at.

Thanks to all for the help.
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TOD accounts are a great way to avoid the messy probate process. It's efficient, and the administration is fairly cheap. It's also a convenient way to provide a certain amount to beneficiaries directly.

Be careful what you wish for and be careful getting piecemeal advice on wills, taxes and estates.

You can title accounts however the person typing is willing to do it - it doesn't mean it's a valid way to title an account.
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This particular account is a rollover IRA which originally came from a company plan years ago. It truly is a TOD account, Transfer on Death,

Here's the problem with that. (I still can't imagine how it managed to get titled that way.)

IRAs are customarily titled

ABC Brokerage, Custodian
IRA FBO (for benefit of) John Doe

John is commonly called the owner. The owner can (and should) name IRA benficiaries. Upon the owner's death, the beneficiaries have options as inicated in Pub 590. There are two types of beneficiaries: spouse and non-spouse. Only a spouse beneficiary can elect to treat the IRA as his/her own. This is a tax-law restriction.

As you know, TOD accounts involve a simple change of the name of the owner after death. If that same process was used with respect to a non-spouse beneficiary of an IRA it would be illegal. Inherited IRAs are titled so to indicate that they're inherited, who the decedent was, and who the benficiary is. I have no idea what would happen upon the death of this IRA owner with the "TOD" designation on the account, but it would likely be a mess and could wind up with the beneficiary being required to withdraw the entire amount, which as noted is subject to income tax.

You really should get with the custodian and fix this. It will save a lot of grief when you, as we say in Kansas, go to your reward.

Phil
Rule Your Retirement Home Fool
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when you, as we say in Kansas, go to your reward.

The following sign is a joke.

The Karma Restaurant
No Menu
You get what you deserve.
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I thank you Phil, this was not my decision to make. At one time, it was titled an FBO, not sure why the change. But as they say, We Own it now, literally ;)

I had read a few articles and tax citations that explained the TOD process for retirement accounts, so I assumed it was a somewhat common practice. I can see where someone would not want to do it this way, there is no way to inherit it, you have to deal with the proceeds.

Which is fine, that would be our choice anyway.

Now if this was Mitt's IRA, I'd not want to see it taxed this way ;)
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I thank you Phil, this was not my decision to make. At one time, it was titled an FBO, not sure why the change. But as they say, We Own it now, literally ;)

If a mistake was made in titling the account, and if you haven't been taking out required distributions, it may not be as simple as "We Own it now".

According to the Wall St Journal, the IRS is starting to crack down on improper transfers and missed distributions: http://online.wsj.com/article/SB1000142405270230444140457748...

From the article: Ed Slott, an IRA consultant in Rockville Centre, N.Y., recently came across the case of a 31-year-old woman who inherited an IRA at age 17 when her father died. Her family's adviser made a mistake, putting the $170,000 into her own IRA rather than retitling the father's account as an inherited IRA.

Now, the entire account balance is going to pay penalties since the IRA was really a taxable distribution 14 years ago, Mr. Slott says.

For that problem, "there was no solution, and it's not right," he says. "She was innocent. All that had to happen was an adviser put the money in an inherited IRA for her from day one."


I would strongly suggest that if you inherited an IRA from your parent that isn't titled as "HMALETTER's Parent (dec'd xx/xx/xx) FBO HMALETTER, beneficiary" or something very similar, that you need to get it re-titled correctly sooner, rather than later. As you can see, the IRS is apparently going back many years to catch these errors, and it doesn't sound like if they catch them that they are willing to forgive even if it wasn't the owner's fault.

In addition, if you haven't been taking out the required distributions, you need to get that corrected sooner, rather than later, too.

AJ
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Glad I cam back to look at this.

Thanks for the head's up AJ.

It was titled as Parent, TOD XXX XXX
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Glad I cam back to look at this.

I'm not sure I am. From the beginning this thread has driven me crazy since I'm still not sure exactly what the timeline is and what type of account(s) we're talking about.

Here's what I think I've pieced together.

Someone other than your spouse had a traditional IRA that named you as a beneficiary.

That person died. You've never said when, but I'm now thinking maybe in 2012?

Your share of that account wound up in an account titled in your name with no reference that it's any type of IRA.

It appears that your initial question might have been "What are the tax implications for me?"

Please either confirm or correct my scenario, including the information about when the original owner died. And please, please, please, do not use the term "retirement account."

If we can nail down exactly what happened we can say what the tax implications, and possible options, are.

Phil
Rule Your Retirement Home Fool
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Hmmm

Father died this year.

The account is named "His name first" Then TOD followed by two names.

It is clearly labeled a "Retirement Account" on each page.

I "believe" it's a traditional IRA from years ago, along with his rollover monies from his company retirement plan.
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Father died this year.
My condolences.

Here's an article about Inherited IRAs:
http://www.forbes.com/forbes/2010/0628/investment-guide-stre...
(and about beneficiary forms)

It is clearly labeled a "Retirement Account" on each page.

Is it labeled just that, or "Individual Retirement Account" (aka IRA)?
The IRA accounts I've had have had "IRA" in the title - ex. "John Smith IRA" or "Jane Smith Roth IRA"
On some of the correspondence I have, they address it to "John Smith 742 Evergreen Terrace, ..." and then have "Account 123456890 IRA" in a different spot on the page.

Whether it's an IRA or a Roth IRA is an important question - if you don't see a definite answer, call the company and ask.


Where are the $ currently?
Are they still in the same account, untouched?
Or have they been moved into different accounts?
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The account is named "His name first" Then TOD followed by two names.

It is clearly labeled a "Retirement Account" on each page.


You need to find out exactly what "Retirement Account" means in this context. It could be something like a "Christmas Club" savings account, in other words, totally meaningless in terms of tax law. The source for the answer is the company where the account is located.

Which reminds me, what have they told you about the account and your access to it? If it's TOD and there's a death certificate, why isn't it already in the beneficiaries' names? If it's an IRA why isn't it titled as such?

I'm under the impression that you're not executor of your father's estate, but if your name is on the account that's moot. You don't have to rely on the executor to do anything.

Phil
Rule Your Retirement Home Fool
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Thanks for the concern Phil. I have no idea what type of account it is, except what it says on the statement.

I'm not the executor, I know little to nothing.

As to why it's a TOD and isn't already in the name(s) of the beneficiary(s)?

Great question. One I'm not ready to ask about...

But I do have plenty of tequila and mix on hand ;)
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As to why it's a TOD and isn't already in the name(s) of the beneficiary(s)?

Great question. One I'm not ready to ask about...


Since I sense there's some sort of uncomfortable family dynamic at play I'll offer but one additional item for you and a general caution for lurkers.

For you, since this account will not be part of the executor's duties it's up to you and any other beneficiaries to deal with it. If you ever figure out what's going on and want some information about the tax implications, answers are available here. I for one, though, will not play "if a, ..., if b, ...," etc.

For lurkers, this smells to high heaven of DIY estate planning. Don't let this happen to your family after you're gone. Drop a few bucks on a lawyer and get things done properly.

Phil
Rule Your Retirement Home Fool
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