Sign Up

Why sign in to the Community?

  • Submit a question
  • Check your notifications
or and start working on your taxes
cancel
Showing results for 
Search instead for 
Did you mean: 
BGrvp
Level 1

Parent left no beneficiaries listed on Trad IRAs- Distribution Options / Tax Rates?

As a legal representative of an estate where a parent left two IRAs with no beneficiaries listed, there are so many different answers from both the IRA custodian and even tax people.  The attorney advising states that (this is state of Florida) that the estate must distribute all assets by 12 months of date of death, but I've also heard that non-desigated beneficiaries of IRAs where RMD distributions have not yet started are eligible for the 5 year distribution period to string out the period by which to pay taxes on these IRA (which are quite large approcx 1 million). Also, tax rates are hard to get a fixed answer on too. One source says IRA distributions can be paid directly to the estate beneficiaries at ordinary income tax rates, while another proposes that the IRA assets will have to be taxed at the majority estate income tax rate of 39%. Who is right and who is wrong? Looking to have the two beneficiaries pay the least in taxes and extend the distribution period as long as the IRS will allow. Someone please help! 

3 Replies
DavidD66
Expert Alumni

Parent left no beneficiaries listed on Trad IRAs- Distribution Options / Tax Rates?

The IRAs should be rolled over to Inherited IRA accounts for the beneficiaries.  They can then take a distribution of 100%, or distribute over five years.  I recommend you get in touch with a IRA expert at one of the brokerages like Schwab, Fidelity, Merrill Lynch, etc. to guide you through the process.  Not an investment advisor.

**Say "Thanks" by clicking the thumb icon in a post
**Mark the post that answers your question by clicking on "Mark as Best Answer"
BGrvp
Level 1

Parent left no beneficiaries listed on Trad IRAs- Distribution Options / Tax Rates?

Thank you very much. One additional wrinkle to the situation. One of the two IRAs (actually the largest one of the two) was a Beneficiary IRA that the deceased owner inherited from her husband that pre-deceased her several years prior. Does such a scenario prevent the transfer of that IRA (currently in the estate) to be transferred to an Inherited IRA for the benefit of the two estate beneficiaries? Again...very much appreciate this info!

DavidD66
Expert Alumni

Parent left no beneficiaries listed on Trad IRAs- Distribution Options / Tax Rates?

When someone inherits an inherited IRA, that person is referred to as a successor beneficiary. This is different from a contingent beneficiary. A contingent beneficiary is the person designated to inherit an IRA if the primary beneficiary is unavailable. A successor beneficiary is the person who inherits the IRA after the original inheritor dies.

 

Successor beneficiaries now fall into one of three possible categories. First, those who inherit an IRA from a post-SECURE Act eligible designated beneficiary. Second, those who inherit from a pre-SECURE Act original beneficiary. And third, those who inherit from a post-SECURE Act non-eligible designated beneficiary.

 

In the first two scenarios, the successor beneficiary will most likely get a full 10 years before any distribution is required. However, if the successor beneficiary falls into the third category, the original 10-year clock keeps ticking. In other words, successor beneficiaries in the third category must distribute all assets from the IRA before the end of the tenth year following the original IRA owner’s death. If the successor beneficiary inherits the IRA seven years after the original owner dies, the successor beneficiary will only have three years before the full distribution must be completed.

 

It is worth noting that anyone who inherits an IRA from an eligible designated beneficiary cannot be considered an eligible designated beneficiary themselves, even if they meet the eligibility criteria. The IRS language governing this situation states very clearly: “If an eligible designated beneficiary dies before the portion of the employee’s interest is entirely distributed…the remainder of such portion shall be distributed within 10 years after the death of such eligible designated beneficiary.”

**Say "Thanks" by clicking the thumb icon in a post
**Mark the post that answers your question by clicking on "Mark as Best Answer"
Dynamic AdsDynamic Ads
Privacy Settings
v