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Author: vkg Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121569  
Subject: MRD Date: 12/23/2008 10:22 AM
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The situation is that the IRA owner turned 70 1/2 in 2008 and recently passed away. It was thought that the MRD had been requested. Fidelity is claiming that the required form wasn't submitted. At least, we know that the MRD hasn't been done and have until April 1st to fix the problem without penalty. The IRA will be inherited by the surviving spouse.

If I understand her options they are to transfer the IRA to an inherited IRA or to her own name. It is likely that she will need to draw against the IRA, therefore; an inherited IRA may be the best option.

When an IRA is transferred to the spouse, it becomes their IRA. I believe, that the required MRD for 2008 would be made from the original IRA and the balance transferred to the new IRA.

We talked with Fidelity, but some details remain unclear. If the IRA is transferred to an inherited IRA, it is required to continue MRDs. For 2008, it should be possible to specify an amount based on their combined life expectancy. After the transfer, MRDs could be based on her age. It wasn't clear if the first MRD would be from his or her IRA, but since the spouse is the only beneficiary of the IRA and estate that does not appear to make much difference.

I have two questions:

1.) Can an inherited IRA be transfered to a spouse's name at any time or only when the spouse reaches 59 1/2?

2.) Can the spouse take distributions in addition to the MRD from an inherited IRA without penalty?

Debra
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Author: TMFPMarti Big funky green star, 20000 posts Home Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 103137 of 121569
Subject: Re: MRD Date: 12/23/2008 11:07 AM
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1.) Can an inherited IRA be transfered to a spouse's name at any time or only when the spouse reaches 59 1/2?

At any time. It then becomes the spouse's IRA, subject to rules based soley on the spouse's attributes, e.g., the premature distribution penalty applies under age 59 1/2.

2.) Can the spouse take distributions in addition to the MRD from an inherited IRA without penalty?

Yes.

Phil

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Author: vkg Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 103138 of 121569
Subject: Re: MRD Date: 12/23/2008 11:10 AM
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Phil,

Thank you,

Debra

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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: 103148 of 121569
Subject: Re: MRD Date: 12/23/2008 10:06 PM
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Since the IRA holder died before his Required Beginning Date(RBD)of April 1,2009 neither he nor his beneficiary is required to take a 2008 MRD. Because of last week's action by congress(no stem cells, so Bush should sign) a 2009 MRD also will not be required.

You mention that she was the only beneficiary of the IRA and estate. Was she the directly named beneficiary the IRA? Or did she inherit it from the estate through probate(thru will or intestate)? The later would require that she withdraw all the inherited IRA within 5 years, rather than over her life.

The named spouse beneficiary may take the inherited IRA as her own at any time(after it is separated from other beneficiaries if present). If it is taken as her own the original spouse's death no longer provides an exception to 10% penalty, so if she takes distributions before she reaches 59 !/2 they normally would be subject to it. (A good reason for waiting for age 59 1/2 before she takes it as her own.)

As long as it is not her own, she may take out any amount without penalty under the death exception to 10% penalty. (Failure to take an MRD at the appropriate time causes a 50% penalty on required amount not taken).

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Author: vkg Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 103169 of 121569
Subject: Re: MRD Date: 12/26/2008 1:30 AM
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The named spouse beneficiary may take the inherited IRA as her own at any time(after it is separated from other beneficiaries if present). If it is taken as her own the original spouse's death no longer provides an exception to 10% penalty, so if she takes distributions before she reaches 59 !/2 they normally would be subject to it. (A good reason for waiting for age 59 1/2 before she takes it as her own.)


She is the IRA beneficiary. Moving it to her name would end the requirement for MRD. If she doesn't need to continue to draw against the IRA, then shifting it to her name would end the MRD requirement. It is to soon for her to make those decisions.

Debra

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