Inherited IRA question

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
User avatar
Topic Author
Meaty
Posts: 698
Joined: Mon Jul 22, 2013 7:35 pm
Location: Texas

Inherited IRA question

Post by Meaty » Wed Jan 23, 2019 4:17 pm

My father in law passed away recently and had his IRA set up to transfer on death equally to 3 beneficiaries. I’ve signed the necessary paperwork to set up an inherited IRA in my name and have started receiving mail with my new account number, etc

That said, the current financial advisor is saying no trading can occur until all 3 beneficiaries set up their accounts. This concerns me because she had convinced my FIL to invest heavily in alternative investments like non traded REITS, etc

Does this seem accurate? Why would all beneficiaries need to have signed/set up accounts before decisions can be made on the 1/3 allocated to me?

Thanks
"Discipline equals Freedom" - Jocko Willink

bloom2708
Posts: 6888
Joined: Wed Apr 02, 2014 2:08 pm
Location: Fargo, ND

Re: Inherited IRA question

Post by bloom2708 » Wed Jan 23, 2019 5:00 pm

I assume the split has to happen on the same day (close of the same day).

Without all 3 accounts created, you can't split 3 ways. With the account value changing daily.

During this waiting phase, understand the RMD required and think about how this new money fits into your overall portfolio.
"People want confirmation, not advice" Unknown | "We are here to provoke thoughtfulness, not agree with you" Unknown | Four words. Whole food, plant based. Bing it.

chevca
Posts: 2793
Joined: Wed Jul 26, 2017 11:22 am

Re: Inherited IRA question

Post by chevca » Wed Jan 23, 2019 5:30 pm

Sounds accurate to me. Bloom explained it well.

Sis and I went in the same day to open the new accounts to split our inherited IRA into. Get on the other two beneficiaries to get their accounts open.

User avatar
Topic Author
Meaty
Posts: 698
Joined: Mon Jul 22, 2013 7:35 pm
Location: Texas

Re: Inherited IRA question

Post by Meaty » Wed Jan 23, 2019 5:35 pm

Thanks to the above replies. Unfortunately the 2 others are so inebriated most of the time they’ll likely struggle to make it in to an advisors office anytime soon
"Discipline equals Freedom" - Jocko Willink

chevca
Posts: 2793
Joined: Wed Jul 26, 2017 11:22 am

Re: Inherited IRA question

Post by chevca » Wed Jan 23, 2019 5:38 pm

Oye, good luck there.

Is there a form u can get and bring to them to sign? You may have to do most of the leg work yourself.

Tell them there's beer money just waiting to be theirs. :happy

Alan S.
Posts: 8663
Joined: Mon May 16, 2011 6:07 pm
Location: Prescott, AZ

Re: Inherited IRA question

Post by Alan S. » Wed Jan 23, 2019 7:18 pm

I disagree. There is no such IRS requirement and most IRA custodians will create inherited IRA accounts upon submission of the required documentation for each beneficiary. If the inherited share is 1/3, they simply transfer 1/3 of the holdings on the date of the transfer into your inherited IRA account. No beneficiary should be held hostage due to dysfunctional or procrastinating siblings or other beneficiaries.

So why do a few custodians adopt this anti consumer stance in their processing procedures? Probably because there is some small amount of efficiency in dealing with the inherited IRA transfers just one time. But it does not take any challenging math to simply provide one third for you, and then when the next beneficiary steps up to transfer 1/2 of what is left at that time into a second inherited IRA, etc. You or your financial advisor should pressure them into setting up your account once you have provided them with all YOUR documentation. You may offer to transfer your inherited IRA to another custodian if that will get the job done. Custodians generally do not find inherited IRA accounts attractive since they are a wasting asset for them.

I hope more IRA owners look into who their custodian is in terms of avoiding those that are not accommodating to the beneficiaries. Dysfunctional beneficiaries can be very costly for responsible and efficient co beneficiaries.

Further, if you are to be able to use your own life expectancy for RMDs and you are NOT the oldest beneficiary, failure to establish your inherited IRA by the end of the year following the year of death will subject you to RMDs based on the oldest beneficiary. There has also been lack of clarity from the IRS over whether ALL beneficiaries must establish separate accounts by the deadline or if the separate account rules apply individually to those who do set up the account by the deadline.

mggray17
Posts: 112
Joined: Thu Feb 11, 2010 8:09 am

Re: Inherited IRA question

Post by mggray17 » Wed Jan 23, 2019 7:33 pm

ALan S.

Glad to hear your opinion on this.
I have an inherited IRA. My father passed in Sep '18. My brother and I are equal beneficiaries. I have split all investment account 50% / 50%.
The IRA was held at DWS. They set up an inherited IRA for me and one for my brother at the same time. I transferred mine to Vanguard.
Went about the process to start my required RMD's for 2019 online. I got to a question in the process that asks if I am the only beneficiary. If I falsely say Yes, the RMD is set up correctly for me. If I say no, the online process stops and I have to call Vanguard. I assume if I call I just have to verbally assure them that my brother is taking RMD's based on his life expectancy? It seems odd if we are at different brokers to have to verify what the other is doing, but my understanding is if he decides to take the RMD's by the 5 year rule, I do too, even though our separate accounts are set up. Scratch that. Just rereading 590-B, it seems that if we both have "seperate acounts" set up, we should be taking normal RMD's.
Last edited by mggray17 on Wed Jan 23, 2019 7:58 pm, edited 2 times in total.

IowaFarmBoy
Posts: 707
Joined: Fri Jan 22, 2010 8:19 am

Re: Inherited IRA question

Post by IowaFarmBoy » Wed Jan 23, 2019 7:36 pm

We've had mixed experiences with splitting accounts. DW and her brother were the beneficiaries of several of their mother's accounts. Her brother was slower at getting paperwork in than DW. Vanguard and TIAA split off DW's share of IRAs immediately upon getting her paperwork even though BIL took months longer. A taxable brokerage account containing individual stocks with Edward Jones wasn't as smooth. They wanted both sets of paperwork in before splitting the account. DW actually had to re-submit her request since it had passed some 90 day window. I don't know if the difference was simply due to different company policies or was due to it being a taxable brokerage account instead of IRAs. I could see there might be a difference in that they had to sell some shares to avoid fractional shares and they may have needed an ok from both beneficiaries.

mggray17
Posts: 112
Joined: Thu Feb 11, 2010 8:09 am

Re: Inherited IRA question

Post by mggray17 » Wed Jan 23, 2019 7:53 pm

To clarify, when I said I split everything 50/50, I actually did the paper work for the inherited IRA's and 3 Individual stocks to be split 50/50.
All taxable investments (mutual funds) and CD's and saving were liquidated and deposited in the Estate Account and then split.

mattshwink
Posts: 370
Joined: Mon Sep 21, 2015 10:01 am

Re: Inherited IRA question

Post by mattshwink » Wed Jan 23, 2019 8:06 pm

mggray17 wrote:
Wed Jan 23, 2019 7:33 pm
I transferred mine to Vanguard.
Went about the process to start my required RMD's for 2019 online. I got to a question in the process that asks if I am the only beneficiary. If I falsely say Yes, the RMD is set up correctly for me. If I say no, the online process stops and I have to call Vanguard. I assume if I call I just have to verbally assure them that my brother is taking RMD's based on his life expectancy? It seems odd if we are at different brokers to have to verify what the other is doing, but my understanding is if he decides to take the RMD's by the 5 year rule, I do too, even though our separate accounts are set up. Scratch that. Just rereading 590-B, it seems that if we both have "seperate acounts" set up, we should be taking normal RMD's.
Since the IRA is now Inherited (it should be title something like "name of deceased fbo of your_name") you are the sole beneficiary (and your brother is the sole beneficiary of his). You can say yes. Yes, you can each separately decide to take RMDs and decide how to take them (five year rule or not, and when during the year you take your RMD).

PoundCake
Posts: 20
Joined: Sun Feb 11, 2018 8:23 am

Re: Inherited IRA question

Post by PoundCake » Wed Jan 23, 2019 8:14 pm

My sibs and I inherited an IRA from our mother, held at Vanguard. We were each pretty punctual, but we didn't submit our paperwork at the same time. Vanguard had no issues with splitting the IRA as the paperwork came in. They royally screwed up the division and that was a small nightmare to correct, but there was no requirement that all the paperwork be submitted before the split could occur.

Alan S.
Posts: 8663
Joined: Mon May 16, 2011 6:07 pm
Location: Prescott, AZ

Re: Inherited IRA question

Post by Alan S. » Wed Jan 23, 2019 8:48 pm

PoundCake wrote:
Wed Jan 23, 2019 8:14 pm
My sibs and I inherited an IRA from our mother, held at Vanguard. We were each pretty punctual, but we didn't submit our paperwork at the same time. Vanguard had no issues with splitting the IRA as the paperwork came in. They royally screwed up the division and that was a small nightmare to correct, but there was no requirement that all the paperwork be submitted before the split could occur.
How did they mess it up? Usually, all the holdings will be split proportionately according to the beneficiary %s, so everyone gets a share of each holding. There might be very small rounding issues in some cases resulting in a small difference in the value going to each inherited IRA.

Alan S.
Posts: 8663
Joined: Mon May 16, 2011 6:07 pm
Location: Prescott, AZ

Re: Inherited IRA question

Post by Alan S. » Wed Jan 23, 2019 8:57 pm

mggray17 wrote:
Wed Jan 23, 2019 7:33 pm
ALan S.

Glad to hear your opinion on this.
I have an inherited IRA. My father passed in Sep '18. My brother and I are equal beneficiaries. I have split all investment account 50% / 50%.
The IRA was held at DWS. They set up an inherited IRA for me and one for my brother at the same time. I transferred mine to Vanguard.
Went about the process to start my required RMD's for 2019 online. I got to a question in the process that asks if I am the only beneficiary. If I falsely say Yes, the RMD is set up correctly for me. If I say no, the online process stops and I have to call Vanguard. I assume if I call I just have to verbally assure them that my brother is taking RMD's based on his life expectancy? It seems odd if we are at different brokers to have to verify what the other is doing, but my understanding is if he decides to take the RMD's by the 5 year rule, I do too, even though our separate accounts are set up. Scratch that. Just rereading 590-B, it seems that if we both have "seperate acounts" set up, we should be taking normal RMD's.
That's right. Under the separate account rules, the accounts are separate in all respects providing they were established by the deadline. Since your separate account was you should answer yes. Now if your separate account was not established by 12/31/2019 your RMDs would have to be based on the oldest sibling, as would his.

By meeting the separate account deadline, if your father passed prior to his RBD then you each have the option of selecting the 5 year rule or life expectancy independently of the other.

PoundCake
Posts: 20
Joined: Sun Feb 11, 2018 8:23 am

Re: Inherited IRA question

Post by PoundCake » Wed Jan 23, 2019 9:07 pm

Alan S. wrote:
Wed Jan 23, 2019 8:48 pm
PoundCake wrote:
Wed Jan 23, 2019 8:14 pm
My sibs and I inherited an IRA from our mother, held at Vanguard. We were each pretty punctual, but we didn't submit our paperwork at the same time. Vanguard had no issues with splitting the IRA as the paperwork came in. They royally screwed up the division and that was a small nightmare to correct, but there was no requirement that all the paperwork be submitted before the split could occur.
How did they mess it up? Usually, all the holdings will be split proportionately according to the beneficiary %s, so everyone gets a share of each holding. There might be very small rounding issues in some cases resulting in a small difference in the value going to each inherited IRA.
You'd think it'd be easy, right? Alas, no. They set up my account first and gave me 1/3. They later set up Sib1's account. For some funds, they gave her 1/2 of what remained, which was correct as the IRA was to be split in thirds. For other funds, they gave her 1/3 of what remained, which was incorrect. Sib1 and I caught the error because we compared shares, but it took lots of effort to get it corrected. I know that doesn't make sense because the math error was so obvious, but that's what happened. There were other issues with the set-up of Sib2's account, but not pertaining to this issue so I'll leave them out of this discussion.

User avatar
Topic Author
Meaty
Posts: 698
Joined: Mon Jul 22, 2013 7:35 pm
Location: Texas

Re: Inherited IRA question

Post by Meaty » Wed Jan 23, 2019 9:48 pm

Alan S. wrote:
Wed Jan 23, 2019 7:18 pm
I disagree. There is no such IRS requirement and most IRA custodians will create inherited IRA accounts upon submission of the required documentation for each beneficiary. If the inherited share is 1/3, they simply transfer 1/3 of the holdings on the date of the transfer into your inherited IRA account. No beneficiary should be held hostage due to dysfunctional or procrastinating siblings or other beneficiaries.

So why do a few custodians adopt this anti consumer stance in their processing procedures? Probably because there is some small amount of efficiency in dealing with the inherited IRA transfers just one time. But it does not take any challenging math to simply provide one third for you, and then when the next beneficiary steps up to transfer 1/2 of what is left at that time into a second inherited IRA, etc. You or your financial advisor should pressure them into setting up your account once you have provided them with all YOUR documentation. You may offer to transfer your inherited IRA to another custodian if that will get the job done. Custodians generally do not find inherited IRA accounts attractive since they are a wasting asset for them.

I hope more IRA owners look into who their custodian is in terms of avoiding those that are not accommodating to the beneficiaries. Dysfunctional beneficiaries can be very costly for responsible and efficient co beneficiaries.

Further, if you are to be able to use your own life expectancy for RMDs and you are NOT the oldest beneficiary, failure to establish your inherited IRA by the end of the year following the year of death will subject you to RMDs based on the oldest beneficiary. There has also been lack of clarity from the IRS over whether ALL beneficiaries must establish separate accounts by the deadline or if the separate account rules apply individually to those who do set up the account by the deadline.
Thank you; this is very helpful. I’m going to try pushing this with the advisor. Unfortunately, she doesn’t seem to be terribly knowledgeable and has a vested interest in keeping the account under her management for as long as possible (the fees are outrageous).
"Discipline equals Freedom" - Jocko Willink

ccieemeritus
Posts: 628
Joined: Thu Mar 06, 2014 10:43 pm

Re: Inherited IRA question

Post by ccieemeritus » Thu Jan 24, 2019 4:03 am

I had no issues getting TD Ameritrade to split an IRA into 20% chunks as per the beneficiary designation as paperwork was submitted for each of 5 inheritors. I’m curious what “brokerage” you are dealing with. I’ve found estate departments at large brokerages to be very helpful.

It’s possible that the financial advisor is at a different company than the brokerage/custodian. For example I think Edelman Financial uses TD Ameritrade as the custodian. If something like that is the case you may want to take the death certificate directly to the custodian. I am not a lawyer but I believe any power of attorney form delegating power to an advisor is no longer in force after the death of the signee.

User avatar
Topic Author
Meaty
Posts: 698
Joined: Mon Jul 22, 2013 7:35 pm
Location: Texas

Re: Inherited IRA question

Post by Meaty » Thu Jan 24, 2019 10:08 am

ccieemeritus wrote:
Thu Jan 24, 2019 4:03 am
I had no issues getting TD Ameritrade to split an IRA into 20% chunks as per the beneficiary designation as paperwork was submitted for each of 5 inheritors. I’m curious what “brokerage” you are dealing with. I’ve found estate departments at large brokerages to be very helpful.

It’s possible that the financial advisor is at a different company than the brokerage/custodian. For example I think Edelman Financial uses TD Ameritrade as the custodian. If something like that is the case you may want to take the death certificate directly to the custodian. I am not a lawyer but I believe any power of attorney form delegating power to an advisor is no longer in force after the death of the signee.
LPL is the custodian and an independent FA is the advisor. It’s a good idea to call LPL and see if we can get movement directly from them
"Discipline equals Freedom" - Jocko Willink

MnD
Posts: 4339
Joined: Mon Jan 14, 2008 12:41 pm

Re: Inherited IRA question

Post by MnD » Thu Jan 24, 2019 12:55 pm

Meaty wrote:
Wed Jan 23, 2019 5:35 pm
Thanks to the above replies. Unfortunately the 2 others are so inebriated most of the time they’ll likely struggle to make it in to an advisors office anytime soon
Despite a great deal of variation of investing acumen among my siblings, I made it clear that I wasn't going to even attempt to direct the brokerage to split and distribute the IRA to inherited IRA accounts until all had them set up and provided me with the account numbers. I recommended they set it up at the same well-regarded discount brokerage that most of them already used, and they all did.

I gave regular updates about who had and who had not set up their account for peer pressure. I think I had the thing distributed in about 2-weeks after giving the siblings their marching orders. Receiving significant amounts of money does seem to be motivating, regardless of investing experience or alcohol consumption. If your co-inheritors are full-blown non-functional alcoholics to the point where receiving money doesn't register to them, you might have to take a very hands on approach to getting their accounts set up for them. Good luck!

MnD
Posts: 4339
Joined: Mon Jan 14, 2008 12:41 pm

Re: Inherited IRA question

Post by MnD » Thu Jan 24, 2019 1:10 pm

Meaty wrote:
Thu Jan 24, 2019 10:08 am
LPL is the custodian and an independent FA is the advisor. It’s a good idea to call LPL and see if we can get movement directly from them
You have another problem - namely LPL and the advisor who are all set up as "independent contractors" under the LPL business model (see 2nd link). Also Google LPL Financial complaints - 2 examples below.

I'd suggest do everything possible to get all 3 accounts set up at the same reputable major brokerage with well-regarded customer service (like Schwab or Fidelity) and be very direct with LPL and the advisor that you want to assets distributed. Unfortunately you may end up with 1/3 shares of a basket of non-traded unmarketable REIT's that were sold to your FIL yo enrich the broker versus being suitable investments. But at least you will get the assets away from LPL and the "independent" advisor.

https://www.financial-planning.com/news ... s-activity
https://www.dkrpa.com/blog/lpl-financia ... tory-reit/

milo minderbinder
Posts: 39
Joined: Fri Apr 20, 2018 12:57 pm

Re: Inherited IRA question

Post by milo minderbinder » Thu Jan 24, 2019 1:55 pm

Schwab had no problem splitting the IRA on the varying dates my siblings and I set up our individual accounts. I'd push back on this and ask for documentation of this restriction.

User avatar
Topic Author
Meaty
Posts: 698
Joined: Mon Jul 22, 2013 7:35 pm
Location: Texas

Re: Inherited IRA question

Post by Meaty » Thu Jan 24, 2019 2:53 pm

MnD wrote:
Thu Jan 24, 2019 1:10 pm
Meaty wrote:
Thu Jan 24, 2019 10:08 am
LPL is the custodian and an independent FA is the advisor. It’s a good idea to call LPL and see if we can get movement directly from them
You have another problem - namely LPL and the advisor who are all set up as "independent contractors" under the LPL business model (see 2nd link). Also Google LPL Financial complaints - 2 examples below.

I'd suggest do everything possible to get all 3 accounts set up at the same reputable major brokerage with well-regarded customer service (like Schwab or Fidelity) and be very direct with LPL and the advisor that you want to assets distributed. Unfortunately you may end up with 1/3 shares of a basket of non-traded unmarketable REIT's that were sold to your FIL yo enrich the broker versus being suitable investments. But at least you will get the assets away from LPL and the "independent" advisor.

https://www.financial-planning.com/news ... s-activity
https://www.dkrpa.com/blog/lpl-financia ... tory-reit/
Thanks. After using some of the info I gleaned from this thread, magically the FA is going to see what she can do. Hopefully this gets resolved/transferred soon
"Discipline equals Freedom" - Jocko Willink

ingenue
Posts: 74
Joined: Thu Jul 21, 2011 8:56 am

Re: Inherited IRA question

Post by ingenue » Thu Jan 24, 2019 11:38 pm

The custodian for my father's retirement account would not set up inherited accounts for beneficiaries (beneficiary forms indicated split between me and 2 siblings.) They would only cut checks.

We had to each open a new inherited IRA account with a another company, and each submit our beneficiary paperwork and destination account information to the original custodian. The original custodian was very clear that they would not make any distributions until they had received the completed beneficiary forms from all 3 beneficiaries.

I selected a destination company, prepared all 3 sets of paperwork to open inherited IRA accounts, and prepared 3 beneficiary forms with death certificate attached, to request distribution from the original account custodian.

Then I called a family meeting and explained to my siblings the benefits of an inherited IRA, and what they needed to do (sign the documents as indicated, taking the new account application packet to a local brick-and-mortar location to open an account, and mailing the beneficiary forms to the original custodian.)

I personally took the procrastination-prone sibling to get his new account. Other sibling was prompt on their own. Transactions were all completed within a few weeks.

-ingenue

User avatar
Topic Author
Meaty
Posts: 698
Joined: Mon Jul 22, 2013 7:35 pm
Location: Texas

Re: Inherited IRA question

Post by Meaty » Fri Jan 25, 2019 9:46 pm

Reporting back - LPL/the advisor is going to separate the accounts now even though all beneficiaries have not signed paperwork. Thanks for everyone’s help
"Discipline equals Freedom" - Jocko Willink

Post Reply