Reply To: Inherited IRA mechanics

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Alan S.

1) The 4 children are jointly responsible for completing the year of death RMD by 12/31/2020, therefore they do not have to participate equally. Often there is one beneficiary who plans to take a distribution large enough to complete the year of death RMD alone. But if there is any doubt regarding follow through, the next best solution is 25% each. The distribution can only be made to the beneficiaries, not the estate and this can only be done when the beneficiaries have established separate inherited IRA accounts. It does not have to be done before any beneficiary does a direct transfer to a new inherited IRA custodian either.

2) Yes, but this only happens when the estate is the named or default beneficiary. In your case, individuals were named directly, so the estate will not have any authority and cannot receive a distribution. The executor therefore has no direct authority, but might provide general advice and coordination services.

3) Again, the individuals will receive direct distributions and will receive their 1099R directly from the inherited IRA custodian.

4) As stated above, each beneficiary should establish their separate inherited IRA with current firm. They can then request a distribution from that firm before a transfer out, or wait and request it from the new custodian.

5) 6) Yes, 25% of account to the first inherited IRA, 33.33% of what is left to the second inherited IRA, then 50% of what is left to the third.

7) Probably depends on the custodian. They don’t want to get into a complex breakdown of several different securities.

8) Of course, the beneficiaries no longer face annual RMDs under the 10 year rule, but they will need to have a plan to prevent a large taxable distribution if they wait until the end of the 10 year period. Any beneficiary that qualifies as an “eligible DB” can still stretch, and they need to be sure to create a separate inherited IRA no later than 12/31/2021 to protect that stretch.