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Is there an IRS requirement that a TIRA trustee must create an inherited TIRA for any named beneficiaries on the death of the original investor?

I ask because this now somewhat dated 2004 article suggests that cashing out the IRA might be an option.

http://www.bankrate.com/brm/news/ira/20041006a1.asp

“Cash out the account so it is no longer an IRA. "If you cash out the account, keep in mind that the funds are immediately considered taxable income for that year," Goetting says. She suggests talking with a tax pro before you make this decision, especially if a significant amount of money is involved.”

I can see where the IRS might want evidence that the MRD for the year of death had been taken even though they clearly get their pound of flesh and then some if the beneficiary converts the TIRA to cash and recognizes it as income.

Thanks,

baumgrenze
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Is there an IRS requirement that a TIRA trustee must create an inherited TIRA for any named beneficiaries on the death of the original investor?

I'm not sure there is a requirement in the tax code. But I suspect most IRA custodians would be happy to do so, as it keeps the assets under their management so they can charge their fees or do whatever it is they do to make money from that account.

I ask because this now somewhat dated 2004 article suggests that cashing out the IRA might be an option.

Sure it's an option. Sometimes it's a good choice for the IRA beneficiary, sometimes not.

I don't see what one has to do with the other, though.

--Peter
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I'm trying to establish the facts in a discussion with just such a custodian. Boilerplate text in their form used by beneficiaries to file a claim implies that the only option for non-spousal beneficiaries is the creation of an inherited TIRA. Their normal annual custodial fee is $40/year. I doubt they save themselves much money if they insist on creating the account just so I can claim less than $1500. Hope springs eternal, I guess.

I know that there are IRS experts who frequent this board. I hope to hear from one who has a definitive answer.

thanks,

baumgrenze
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Is there an IRS requirement that a TIRA trustee must create an inherited TIRA for any named beneficiaries on the death of the original investor?

I can't see any way around it regardless of what the beneficiary wants to do after it's set up. The decedent's interest in the account ends when the decedent does and moves to the beneficiaries. Thus the need for new accounts.

Phil
Rule Your Retirement Home Fool
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Thank you Phil,

It appears that the information on the bankrate.com website is bogus and that the option to cash out without creating a new account does not exist. That is what I wanted to establish.

baumgrenze
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It appears that the information on the bankrate.com website is bogus and that the option to cash out without creating a new account does not exist.

I think you're reading too much into that article. The article is dealing with the bigger picture of planning what to do with an inherited IRA. It is not dealing with the mechanics of accomplishing that plan.

Their comment that one option is to cash out the IRA does not imply that the mechanics of that option are to directly get the cash from the decedent's IRA.

--Peter
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It appears that the information on the bankrate.com website is bogus and that the option to cash out without creating a new account does not exist.

Could you provide a more specific link? This is the only thing I found in a quick search, and I didn't see anything like what you're talking about.

http://www.bankrate.com/finance/retirement/8-ways-go-wrong-i...

Phil
Rule Your Retirement Home Fool
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Boilerplate text in their form used by beneficiaries to file a claim implies that the only option for non-spousal beneficiaries is the creation of an inherited TIRA. Their normal annual custodial fee is $40/year. I doubt they save themselves much money if they insist on creating the account just so I can claim less than $1500. Hope springs eternal, I guess.

I recently inherited a tax deferred annuity that I was able to roll into an "inherited IRA" to continue deferring income on most of the principal. I do have to take required minimum distributions based on my age, rather than my dad's, but that is much better for me than cashing it in as some of my siblings chose to do.

My broker charged me no fees for the new account. While we all would have preferred to roll it into one of my existing accounts, the need to take RMDs on this portion of my IRA assets required it be separate. The broker had nothing to gain by setting up yet another account, so I am sure it was necessary.

FWIW,

IP
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While we all would have preferred to roll it into one of my existing accounts, the need to take RMDs on this portion of my IRA assets required it be separate.

Actually, it's more than that. The regulations require specific identification of inherited IRAs, including the names of both the beneficiary and the decedent. And, unlike regular IRAs, each has its own RMD (if you happen to inherit more than one).

Phil
Rule Your Retirement Home Fool
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Actually, it's more than that. The regulations require specific identification of inherited IRAs, including the names of both the beneficiary and the decedent.

Yeah, I did think it strange that the account is actually in Dad's name. We were given the same explanation you gave. I would suppose this is done so that the IRS can track the funds transition from one owner to another.

IP
hoping the RMD is very small
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My broker charged me no fees for the new account. While we all would have preferred to roll it into one of my existing accounts, the need to take RMDs on this portion of my IRA assets required it be separate. The broker had nothing to gain by setting up yet another account, so I am sure it was necessary.

Only spouses can move inherited IRAs into their own name. Once in their name, the RMD is based on their age.
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Only spouses can move inherited IRAs into their own name. Once in their name, the RMD is based on their age.

Just so lurkers don't get confused, non-spouse beneficiaries also can base RMD's on their ages. The difference is that spouses have the option of treating the decedent's IRA as their own or as an inherited IRA, while non-spouse beneficiaries don't have the first option.

Phil
Rule Your Retirement Home Fool
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Thank you everyone for your insights and experience.

I will let the process run its course and be pleased if there are not too many hiccups along the way.

baumgrenze
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