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Author: gpalz Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 76418  
Subject: Inherited IRA Date: 1/2/2004 3:50 PM
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My Mom who is 74 was listed as beneficiary from a just recent inherited IRA (her brother). The IRA lost most of its value and my mom would prefer to withdraw the money and pay the associated tax.

The current investment institution sent the following forms to fill and mail back:

IRA Asset Movement Authorization
IRA Distribution Request
Traditional IRA Adoption Agreement

PLUS

New Account Form (shows name of current instituion)
Investment Acknowledgement Trade Ticket Form (shows name of current Institution)

I called and they told us we would need to fill out all five forms. They need to open an account for my Mom to tranfer the money into and from there she can withdraw the money from. Is this normal practice? Does my mom need to open an account to gain access to the funds? Neither of us are familiar with the process. Any guidance or insights would be welcomed. Thank you for your time and words.

George
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Author: Watty56 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 38343 of 76418
Subject: Re: Inherited IRA Date: 1/2/2004 5:41 PM
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Having to open another account sounds pretty normal to me since any withdrawals the old account would be reported under her brothers social security number.

You will probably also need to provide the institution with an official copy of her brother's death certificate if you haven't already. If you don't have a copy of his death certificate you can contact the funeral home that handled his burial and they either get one for you or tell you what you need to do in your state.

Your Mom may also have to show some identification and if she does not have a current drivers license or state ID card then you should check with the institution to find out what is acceptable to them.

Greg


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Author: BuildMWell Big gold star, 5000 posts Feste Award Nominee! Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 38344 of 76418
Subject: Re: Inherited IRA Date: 1/2/2004 5:53 PM
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"Does my mom need to open an account to gain access to the funds?"

Yes. As far as the financial institution is concerned, your Mom does not exist...your uncle does until his account is closed legally. He is the one whose name is on the account that they opened for him. Your Mon has to verify that she has a right to the funds and then she has to get the funds into an account that is in her name and which shows her Social Security number so the government is happy.

Now, once she has the account securely in her name, she can open an account in the same name at another institution and move the funds...or she can have the present institution distribute the funds to her. I imagine she will have to pay at least one year's management fees to open her account...that is an integral part of the IRA game too. They want their fair share too.

Remember, the funds that are in any IRA are not all owned by the person whose name is on the account. The government has a claim to their share of that money and that has to be considered first in anything you do with an IRA. You always have to consider the tax consequences and make sure the government can follow the paper trail at every step along the way...they want that tax revenue real bad! And, they are going to get it. It is your Mom's job to make the government's piece of the pie as small as possible unless she loves to pay taxes.

Think of an IRA as a "Check Valve for Money." Dollars go in but they cannot come back out until the check valve is properly over-ridden. That, by the way, is precisely why the government loves IRA's so much. They have gained control over your money and it cannot be moved without their knowledge. In exchange, they give you preferential tax treatment. There is no free lunch.



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Author: gpalz Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 38353 of 76418
Subject: Re: Inherited IRA Date: 1/3/2004 11:41 AM
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Should the new account for my Mom be titled as an inherited IRA (Benificary Distribution Account) or just be under my Mom's name? Im not sure if it makes a difference.

Since my Mom is 74 and has limited income (Ive been supporting her)she originally preferred that the distibution go to me (I was listed as a secondary beneficiary) so I could handle the tax side of things. At the time I didn't think that was possible.

However, I was just reading IRS-590(IRA)to get more familiar with IRA's and on page 34 it seems to indicate that a benificiary can disclaim entitlement. Does anyone know if this is possible? Would the current Institution know?

Thank you once again for your time and words.



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Author: ptheland Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 38355 of 76418
Subject: Re: Inherited IRA Date: 1/3/2004 1:27 PM
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Since my Mom is 74 and has limited income (Ive been supporting her)she originally preferred that the distibution go to me (I was listed as a secondary beneficiary) so I could handle the tax side of things.

That might be a really bad idea tax-wise. Since you mom has limited income, her tax rates are going to be pretty low - likely lower than yours.

All of the distributions from the IRA are going to be taxable to whoever receives them (assuming this is a traditional IRA, not a Roth). Since her taxes are probably lower than yours, your family's tax burden will probably be less if she receives the income.

You could certainly help her out by keeping track of her income and preparing her taxes for her. All she'd have to do is sign the return.

--Peter

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Author: WPatch Three stars, 500 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 38357 of 76418
Subject: Re: Inherited IRA Date: 1/3/2004 8:14 PM
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Should the new account for my Mom be titled as an inherited IRA (Benificary Distribution Account) or just be under my Mom's name?

It must be titled as an inherited IRA.

Since my Mom is 74 and has limited income (Ive been supporting her)she originally preferred that the distibution go to me (I was listed as a secondary beneficiary) so I could handle the tax side of things.


A well drafted durable power of attorney cpould insure that you be able to handle your mother's tax affairs as necessary for the rest of her life. A qualified disclaimer, however could be good tax and estate planning for you and your mother.

The asset and its income will not pass to her. Therefore, if you are supporting her, this income will not disqualify her as a possible dependent, possibly qualifying you for Head of Household treatment.

At the passing of your mother the additional assets of your mother may be subject to state inheritance tax or probate expenses.

If you mother requires Long Term Care with a smaller estate she will qualify for Medicaid sooner.

So, unless you are in a higher tax bracket(over 15%) and have no fear of funding nursing homes. I would respect the decisiion of your elder to disclaim the inherited IRA.

The timing of a qualified disclaimer is a matter of state law, may be made up to at least six months after death of IRA owner.

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