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My mother passed away a few weeks ago at the age of 90. Today I got a letter from CALSTRS saying that I was going to receive a one time death benefit from her account of about 6,300. It said that the death benefit will be taxable income, unless I do a direct roll-over into an inherited IRA. CALSTRS is the California State Teachers Retirement System. To the best of my knowledge, my mother did not have an IRA or either type at the time of her death.

Can an IRA be set up for her and the money put into it, or is it just straight income to me?
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One error in my previous post. The real question is can I set up an inherited IRA for ME to roll this into.
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The real question is can I set up an inherited IRA for ME to roll this into.

I don't think so. See Rollovers in Pub 575.

Phil
Rule Your Retirement Home Fool
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The real question is can I set up an inherited IRA for ME to roll this into.

I don't think so. See Rollovers in Pub 575.


Why not? See the section on "Rollovers by nonspouse beneficiary" on page 28.

Ira
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Why not? See the section on "Rollovers by nonspouse beneficiary" on page 28.

Because of the type of payment. As I read the list of payments that can be rolled over, it's payments made to the beneficiary instead of to the employee. A death benefit would never be paid to an employee. My father received a death benefit from the Kansas retirement system, and I received one from the Illinois retirement system. In neither case was a rollover option ever mentioned.

I will grant that OP's situation may be different. If the plan is sending information about a rollover option, as described on page 28, I'd probably say "go for it." In that case, OP starts the process by contacting the potential custodian for the inherited IRA since this must be done as a direct transfer.

Phil
Rule Your Retirement Home Fool
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Why not? See the section on "Rollovers by nonspouse beneficiary" on page 28.

Because of the type of payment. As I read the list of payments that can be rolled over, it's payments made to the beneficiary instead of to the employee. A death benefit would never be paid to an employee.


Ah. You chose to focus on "death benefit" whereas I assumed that was just imprecise use of language which has a precise meaning within the tax code. Instead I looked at the end of the same sentence in the original post - "It said that the death benefit will be taxable income, unless I do a direct roll-over into an inherited IRA." (emphasis added).

Ira
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...I received [a death benefit] from the Illinois retirement system. In neither case was a rollover option ever mentioned.

I received a death benefit from the Illinois Teachers Retirement System (different from the Illinois retirement system? It's been decades since I've been a resident of Illinois) last year after my mother's death, and the only options they indicated on their form was a cash disbursement or a rollover into an IRA.

Eric Hines
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My mother passed away a few weeks ago at the age of 90. Today I got a letter from CALSTRS saying that I was going to receive a one time death benefit from her account of about 6,300. It said that the death benefit will be taxable income, unless I do a direct roll-over into an inherited IRA. CALSTRS is the California State Teachers Retirement System. To the best of my knowledge, my mother did not have an IRA or either type at the time of her death.

Can an IRA be set up for her and the money put into it, or is it just straight income to me?


I just did this about a month ago with a couple of Dad's annuities. You need to talk to your brokerage and have them set up an inherited IRA in your mom's name with her SS, with you as beneficiary. They should know what to do. It has to be an institution to institution transfer. DO NOT TAKE A CHECK AND TRY TO ROLL IT INTO THE IRA.

You are in for some confusing times. My condolences.

IP
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I just did this about a month ago with a couple of Dad's annuities. You need to talk to your brokerage and have them set up an inherited IRA in your mom's name with her SS, with you as beneficiary. They should know what to do. It has to be an institution to institution transfer. DO NOT TAKE A CHECK AND TRY TO ROLL IT INTO THE IRA.

You are in for some confusing times. My condolences.

IP


Be aware that you will also need to take required minimum distributions, (RMD,) annually, based on your life expectancy rather than your moms. You can take it all out, subject to taxes, at any time. The RMD is the minimum you MUST take out and get taxed on.

IP
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You need to talk to your brokerage and have them set up an inherited IRA in your mom's name with her SS, with you as beneficiary.

The inherited IRA is reported under the beneficiary's SSN, not the decedent's.

Phil
Rule Your Retirement Home Fool
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The inherited IRA is reported under the beneficiary's SSN, not the decedent's.

That may very well be the way it is reported, but my brokerage insisted on having Dad's SS# to set it up, even after my telling him it had already been cancelled due to death, as well as requiring his DOB and DOD. This guy does a ton of these, so hopefully he has it right. They also have my SS#, but they already had that so I didn't need to give it to them a second time.

IP
just still in the process of doing the transfer, not having to have it reported until 2012 tax year
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That may very well be the way it is reported, but my brokerage insisted on having Dad's SS# to set it up, even after my telling him it had already been cancelled due to death, as well as requiring his DOB and DOD.

That makes sense since it has to be titled as an inherited IRA with a reference to the decedent.

Phil
Rule Your Retirement Home Fool
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Thanks all for the help.
I have contacted Fidelity and I now have the correct form to create the inherited IRA. After it exists I will arrange the custodian to custodian transfer from CALSTRS to Fidelity.

Thanks again for all the information, it made this much easier because I knew what I had to ask for. And it turns out that I can set it up to have the RMD done automatically, so I don't have to worry about remembering it.
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