Inherited IRA in a Trust

Forum|Forum|1 year ago
November 20, 2024
1 reply
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My father who passed away has a Trust and I am the Trustee. The Trust inherited his IRA and the custodian, Charles Schwab, is setting up 3 Inherited IRA accounts, 1 account for my father’s main Trust and 2 accounts for the Beneficiaries which my father’s lawyer created Sub Trusts for. His lawyer obtained Tax ID’s for all 3 accounts. The Schwab Estate Specialist said that Schwab will put the inherited money in the main Trust account and I can transfer the funds to the Sub Trusts per the Trust document. For example I will be transferring money from “The John Smith Trust” to “The Jane Doe Trust established by The John Smith Trust”. Is the IRS usually notified of such a transfer and will there be any tax implications? I just want to make sure that the money doesn’t get inadvertently taxed.

Best answer by dmertz

Expert Reviewed

"Is the IRS usually notified of such a transfer and will there be any tax implications?"

No. The funds are only permitted to be moved by nonreportable transfer, not by distribution and rollover.

dmertzAnswer

Level 15

Expert Reviewed

"Is the IRS usually notified of such a transfer and will there be any tax implications?"

No. The funds are only permitted to be moved by nonreportable transfer, not by distribution and rollover.

trust812Author

Level 6

@dmertz When money is moved from the main Inherited IRA Trust account to the 2 Inherited IRA Sub Trust accounts you said that it is a non reportable transfer. Does it mean that a 1099R is not created by Schwab who is the custodian? I am supposed to have a phone meeting with their Estate Specialist on Wednesday so I will ask them the question. I have been reading all sorts of horror stories on the internet about custodians screwing up.

dmertz

Level 15

@dmertz “A Form 5498 will be filed for the new account at the beginning of the following year, but it will only show the type of account and the year-end balance.”

Is the purpose of the form 5498 to let the IRS know that an IRA account was inherited? If not, how would they know to make sure that a Trustee is implementing the proper RMDs per the SECURE 2.0 Act?

"Is the purpose of the form 5498 to let the IRS know that an IRA account was inherited?"

On a Form 5498 from an inherited IRA, both the decedent's name and the beneficiary's name are to be shown in the PARTICIPANT'S name field.

The RMD boxes might indicate that an RMD is required and the amount of the RMD, but IRA custodians are not required to complete this section on Forms 5498 for inherited IRAs. It would typically take an audit by the IRS for the IRS to determine if insufficient RMDs have been taken.