jointly owned inherited ira

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jointly owned inherited ira

Postby williamg » Wed Mar 20, 2013 1:56 pm

Would like help with withdrawal options for a jointly owned, non-spousal inherited ira. Was initially set up as jointly owned with MRDs sent equally to each of two beneficiaries. Can one of the beneficiaries now make a total withdrawal of their share while leaving the other share intact?
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Re: jointly owned inherited ira

Postby ddunca1944 » Wed Mar 20, 2013 2:26 pm

What institution? Can't you call them and ask?
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Re: jointly owned inherited ira

Postby damjam » Wed Mar 20, 2013 2:40 pm

Here's what the IRS says about multiple beneficiaries. Pub 590.
Multiple individual beneficiaries. If as of September 30 of the year following the year in which the owner dies there is more than one beneficiary, the beneficiary with the shortest life expectancy will be the designated beneficiary if both of the following apply.
All of the beneficiaries are individuals, and
The account or benefit has not been divided into separate accounts or shares for each beneficiary.
Separate accounts. A single IRA can be split into separate accounts or shares for each beneficiary. These separate accounts or shares can be established at any time, either before or after the owner's required beginning date. Generally, these separate accounts or shares are combined for purposes of determining the minimum required distribution. However, these separate accounts or shares will not be combined for required minimum distribution purposes after the death of the IRA owner if the separate accounts or shares are established by the end of the year following the year of the IRA owner's death.

You can always take out more than the RMD in any year.
It looks like it would have been more straight forward if the account was split in the first year. However, since one account will be 0, the RMD on the remaining account will be easy enough to compute.

But perhaps there is some twist here that I don't see.
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Re: jointly owned inherited ira

Postby Alan S. » Wed Mar 20, 2013 2:46 pm

You can request a transfer (NOT a withdrawal) to a separate inherited IRA account anytime. However, if the separate inherited IRA is not established by 12/31 of the year following the IRA owner's death, the RMDs for each beneficiary will have to be based on the oldest beneficiary.

Remember that the non spouse inherited IRA funds must be moved by a trustee to trustee transfer. Any distribution made to a beneficiary will be taxable and cannot be rolled over. But if one beneficiary desires a total taxable distribution, this can be done anytime as well. If a total interest is withdrawn by the date above, the remaining beneficiary will be deemed to have established their separate account. If the total distribution occurs later, the remaining beneficiary must still use the oldest beneficiary life expectancy for RMDs.

There are two other actions to complete as well:
1) Make sure that there was no IRA basis from non deductible contributions inherited by the beneficiaries. If there is, the beneficairies can file an 8606 each year and a portion of their RMD will not be taxable.
2) Each beneficiary should name their own successor beneficiary ASAP.
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Re: jointly owned inherited ira

Postby williamg » Thu Mar 21, 2013 8:42 am

Thank you Alan. There will be no 8606's involved and the other owner is fine with RMD paced at older age.
ps - naming beneficiaries ASAP refers to the fact ira will go to estate if beneficiary(s) not named?
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Re: jointly owned inherited ira

Postby Alan S. » Thu Mar 21, 2013 10:01 pm

Yes. If the beneficiary does not name their own successor beneficiary, under most IRA agreements the beneficiary's estate would inherit the IRA and distributions would be subject to probate or some abbreviated version of probate for small estates. Of course, if the beneficiary did not have a will, then state intestate provisions would determine who gets the inherited IRA.
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Re: jointly owned inherited ira

Postby williamg » Fri Mar 22, 2013 10:31 am

Thank you Alan.
Just curious about the actual splitting. Do you know how they split holdings to be fair to each beneficiary? Timing of sales and such would seem to be a factor in ensuring you could have two new accounts that at least started out as equal dollar wise.
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Re: jointly owned inherited ira

Postby bsteiner » Fri Mar 22, 2013 11:29 am

Since there is no executor or administrator or trustee (other than the IRA custodian, who doesn't want to get involved in this), as a practical matter, you have to divide the IRA the first time a beneficiary wants to take a non pro rata distribution.
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Re: jointly owned inherited ira

Postby MnD » Fri Mar 22, 2013 1:35 pm

williamg wrote:Just curious about the actual splitting. Do you know how they split holdings to be fair to each beneficiary? Timing of sales and such would seem to be a factor in ensuring you could have two new accounts that at least started out as equal dollar wise.


I split my mother's IRA 5 ways between 5 siblings ASAP after her death.
Set up 5 Schwab inherited IRA accounts and then sent a letter of instruction to Schwab on how to do the split from 1 to 5.
It was mostly mutual funds so shares were split 5 ways equally. A few assets weren't good candidates
to split, so I divvied those up after discussions with my siblings and just made sure the total account values on
the date of split were equal. So everybody on day one was equal with an almost identical diversified portfolio.

A jointly owned inherited IRA sounds like a real potential mess.
People have very different ideas about what to do with inherited money.
I certainly wouldn't do the 50% withdrawal while the account is still in joint ownership.
If it's like a regular joint account, the owners would both have rights to the remaining balance, even though one received the proceeds from the 50% distribution.
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Re: jointly owned inherited ira

Postby williamg » Sat Mar 23, 2013 12:01 pm

Alan, concerning the naming of beneficiaries after a split.
What happens if one co-beneficiary dies? Assume can go to his/her stated beneficiary which means having a way to split the account is necessary or does it usually revert to the surviving beneficiary?
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Re: jointly owned inherited ira

Postby Alan S. » Sat Mar 23, 2013 9:13 pm

If the deceased beneficiary has named a successor beneficiary to their inherited IRA interest and then dies, their interest passes to the successor beneficiary, not to the remaining primary beneficiary. These are not joint accounts and each beneficiary is limited to their share of the inherited account only. The successor beneficiary of a non spouse beneficiary must continue the RMD schedule of the deceased beneficiary, they do not get a new stretch using their life expectancy.

In order to avoid accounting issues, most IRA custodians will create separate inherited IRA accounts for each beneficiary at the time they order their first distribution, RMD or otherwise.
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Re: jointly owned inherited ira

Postby williamg » Sun Mar 24, 2013 4:44 pm

Alan - thank you for your patience. One more question. Assuming each owner has beneficiaries assigned, can one share still be rolled over to another institution even though not in that first year after death of original owner?
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Re: jointly owned inherited ira

Postby Alan S. » Sun Mar 24, 2013 10:23 pm

Yes, a separate inherited IRA account can be created anytime (by direct transfer only, not rollover), but to have a positive affect on the RMD it must be done by the end of the year following the year owner passed.
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