Message Font: Serif | Sans-Serif
 
No. of Recommendations: 0
My wife is the beneficiary of her mom's IRA.

She was told there was 2 options:

1) put it in an inherited IRA and take distributions from there.

2) withdraw and pay taxes. If withdrawen, are the taxes taxes at our rate?

What if the IRA is in trust? She had a trust, but I don't know if the IRA was in (or even if it can be in trust).

Thanks

Elliot
Print the post Back To Top
No. of Recommendations: 0
My condolence's on your wife's loss.

There are normally 3 options, she may be down to 2. Option 1 is to establish a beneficiary IRA. If your mother-in-law died in 2001, your wife can withdraw funds from the IRA over her expected lifetime using the MRD tables -- but she must begin the distributions this year.

If she died before 2001, there are only 2 options left -- either take the full distribution now, or place the funds in a beneficiary IRA and take the distribution before the end of the 5th calendar year after death.

In any event, distributions will be taxed at your current tax rate. If the distributions are substantial, you could find yourself in a higher tax bracket as a result.

Finally, if your mother-in-law's estate was subject to Estate Tax, you may be able to get a credit for some of the estate tax paid against the IRA income.

Ira
Print the post Back To Top
No. of Recommendations: 0
Thanks Ira.

She died earlier this year (2002). Does this give us the 3 options, specifically option 1?

Taking a lump distribution would put us in a higher tax bracket.

The estate wouldn't be subject to any taxes.

Elliot
Print the post Back To Top
No. of Recommendations: 0
Again, my condolences on your loss.

My earlier response was incomplete. I failed to ask whether your wife's mother had begun taking distributions before her death. The answer to this question will affect your choices.

In any event, with a 2002 date of death, you have until the end of 2003 to commit to a plan. You should review IRS Pub. 590, Individual Retirement Arrangements, particularly the section beginning on pg. 28, "When Must I Withdraw IRA Assets?". You can get the pub at www.irs.gov.

If you still have questions, come back and ask them.

Ira
Print the post Back To Top
No. of Recommendations: 0
Yes. She had started taking distributions last year.

I am in the process of printing out Pub 590.

Thanks again for your help.

Elliot
Print the post Back To Top
No. of Recommendations: 0
Elliot,

Take a look at page 29. Was your mother-in-law 70 1/2 and taking required distributions, or just over 59 1/2 and taking permissable distributions?

If the former, it appears that your wife will have to continue taking distributions over her mother's life expectancy. (Isn't that ironic?)

If the latter, she should be able to use her own life expectancy.

Ira
Print the post Back To Top
No. of Recommendations: 0
She was 70-1/2 taking distributions. from pg 29/30. My wife is an individual. She is not the sole beneficiary. She is not the owner's spouse. Use table I. Are the ages in the tables the age she was in 2001?

Can each beneficiary make their own choices?

Does the amount have to be adjusted at the end of each year? Can the account be used to trade stocks as if it were my wife's IRA?

I would say very ironic that it is based on her deceased mom's life expectancy.

Thanks again for your help Ira. It is a much needed help in trying times.

Elliot
Print the post Back To Top
No. of Recommendations: 0
She was 70-1/2 taking distributions. from pg 29/30. My wife is an individual. She is not the sole beneficiary. She is not the owner's spouse. Use table I. Are the ages in the tables the age she was in 2001?

In 2002, the distribution is determined using Table III and your mother-in-law's life expectancy. The executor of the estate may want to determine whether there is any advantage to taking this distribution into the estate or dividing the IRA quickly and letting the beneficiaries receive the distribution directly. Assuming that the IRA is divided into beneficiary IRAs, distributions in 2003 and beyond will be determined based on your wife's "birthday age" in 2003 using Table I.

Can each beneficiary make their own choices?

If the original IRA is divided into respective beneficiary IRAs, each beneficiary can make his/her own decision within the allowable guidelines.

Does the amount have to be adjusted at the end of each year?

Yes. The dollar amount of each year's distribution is based on the IRA's value as of the preceding 12/31 and the appropriate life expectancy value. The life expectancy values are known ahead of time.

Can the account be used to trade stocks as if it were my wife's IRA?

Yes, provided your IRA trustee approves. In other words, if the IRA is currently at a bank, you'll have to move it to a brokerage. The rules for what you can and cannot do within the beneficiary IRA are the same as for any other IRA. However, you cannot make contributions to a beneficiary IRA, you can't combine it with other IRAs and you cannot make rollovers with/into it. (Remember, in a rollover you receive the funds as an intermediary between two trustees. Direct trustee to trustee transfers are allowed.)

If you choose to invest in securities, the required annual distribution will rise and fall with the change in value of the IRA.

Ira
Print the post Back To Top
No. of Recommendations: 0
Once again. Thanks Ira for all your help and direction.

She was 70-1/2 taking distributions. from pg 29/30. My wife is an individual. She is not the sole beneficiary. She is not the owner's spouse. Use table I. Are the ages in the tables the age she was in 2001?

In 2002, the distribution is determined using Table III and your mother-in-law's life expectancy. The executor of the estate may want to determine whether there is any advantage to taking this distribution into the estate or dividing the IRA quickly and letting the beneficiaries receive the distribution directly. Assuming that the IRA is divided into beneficiary IRAs, distributions in 2003 and beyond will be determined based on your wife's "birthday age" in 2003 using Table I.


Table III says it is for the IRA owner. Table I says it is for beneficiaries. I took it to mean that my MIL was the owner. If this ditribution is taken in the estate, does the estate pay the taxes at the estate rate - which would be lower since it taxed at the 15% for the first increment of money, then on to the next tax bracket.

Can each beneficiary make their own choices?

If the original IRA is divided into respective beneficiary IRAs, each beneficiary can make his/her own decision within the allowable guidelines.

I talked to the custodian of the IRA and they were going to send us an inherited IRA form. They said they needed a certified copy of the death certificate.

Can the account be used to trade stocks as if it were my wife's IRA?

Yes, provided your IRA trustee approves. In other words, if the IRA is currently at a bank, you'll have to move it to a brokerage. The rules for what you can and cannot do within the beneficiary IRA are the same as for any other IRA. However, you cannot make contributions to a beneficiary IRA, you can't combine it with other IRAs and you cannot make rollovers with/into it. (Remember, in a rollover you receive the funds as an intermediary between two trustees. Direct trustee to trustee transfers are allowed.)

That is what will have to be done. How does the brokerage distinguish a tradtional IRA from an inheritred IRA? I have never seen, not that I've looked, a place for lsting an IRA as being inherited. Pub 590 pretty much says that it has to stay its own entity. (Thanks for the heads-up on rollovers. I never thought about not being allowed a rollover, even though I read. It didn't click. That would have been bad. Direct transfer is the only allowed way. I'll definitly have to let erveryone else be aware of that)

If you choose to invest in securities, the required annual distribution will rise and fall with the change in value of the IRA.


So if things continue like they have for the past year or so. It will definitly be less
Print the post Back To Top
No. of Recommendations: 0
2002 MRD:
Table III says it is for the IRA owner. Table I says it is for beneficiaries. I took it to mean that my MIL was the owner. If this ditribution is taken in the estate, does the estate pay the taxes at the estate rate - which would be lower since it taxed at the 15% for the first increment of money, then on to the next tax bracket.

The distribution for 2002 is taken as if your mother-in-law was still alive since she was alive on January 1.

Normally, if the distribution were taken into the estate, the estate would pay tax at its rate, but if assets are distributed to the beneficiaries, the income is generally considered distributed first. So, in either case, the beneficiaries will be paying the tax at their rates. This can be a tricky area of tax law and you (more importantly, the executor(s)) should seriously consider seeking professional advice before making any decisions.

Beneficiary IRAs:
I talked to the custodian of the IRA and they were going to send us an inherited IRA form. They said they needed a certified copy of the death certificate.

That's correct. The IRA will be titled something like "[Broker Name] custodian, [deceased name] IRA for benefit of [beneficiary name]" or "[Broker name] IRA custodian, [beneficiary name] beneficiary of [deceased name]"

Annual distributions:
So if things continue like they have for the past year or so. It will definitly be less

Not necessarily. The fractional distribution increases each year (because the life expectancy decreases by approx. 1 year). So, even with a loss in asset value, the actual cash distribution could increase. This is particularly true as one nears the end of one's life expectancy.

Ira



Print the post Back To Top
No. of Recommendations: 0
The distribution for 2002 is taken as if your mother-in-law was still alive since she was alive on January 1.

Normally, if the distribution were taken into the estate, the estate would pay tax at its rate, but if assets are distributed to the beneficiaries, the income is generally considered distributed first. So, in either case, the beneficiaries will be paying the tax at their rates. This can be a tricky area of tax law and you (more importantly, the executor(s)) should seriously consider seeking professional advice before making any decisions.


I got it this time. My BIL is the executor. We have talked about professional advice, but we wanted to find out and know as much as we could before we contacted anyone.

The IRA will be titled something like "[Broker Name] custodian, [deceased name] IRA for benefit of [beneficiary name]" or "[Broker name] IRA custodian, [beneficiary name] beneficiary of [deceased name]"

That makes it clear.

Thanks Ira for your help.

Elliot - slow learner
Print the post Back To Top
Advertisement