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February 17, 2009

Inherited IRA

Your Guide

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Definition

Also referred to as ‘Beneficiary IRA’.

An IRA that is established for the non-spouse beneficiary of the IRA owner,  or qualified plan , 403(b) or 457(b) participant; or a spouse beneficiary who chose not elect to treat the IRA as his/her ‘own IRA’. The inherited IRA must be maintained in the name of the decedent and the beneficiary, and the tax identification number of the beneficiary. The IRS gave the following example of a registration “ “Brian Willow as beneficiary of Joan Maple” or something similar that signifies that the IRA was once owned by Joan Maple. You may abbreviate the word “beneficiary” as, for example, “bene.” ”

Referring Cite

IRS Instructions for filing IRS Form 1099-R and Form 5498

Additional Helpful Information

Distributions from the inherited IRA is reported as ‘death distributions’, so that the IRS , tax preparers, and tax preparation software recognizes that the distribution is not subject to the 10 percent excise tax that applies to early distributions.

Some financial institutions simple retitle/replate the IRA of the decedent to reflect it as an inherited IRA, and/or perform sub-accounting to ensure that tax reporting is done in the beneficiary’s’ tax identification number.

Others require that the beneficiaries open separate (new) accounts and in order to ensure that proper tax reporting occurs.

The IRS has no preference of operational mechanisms; their requirement is that the tax-reporting meets their specifications.

Written By

Denise Appleby

Denise is CEO of Appleby Retirement Consulting Inc., a firm that provides IRA resources for financial/ tax/legal professionals. She has over 20 years of experience in the retirement plans field, which includes training and technical consultation.

Denise writes and publishes educational /marketing tools for advisors; available at http://irapublications.com. Denise co-authored several books on IRAs

Denise is a graduate of The John Marshall Law School, where she obtained a Masters of Jurisprudence in Employee Benefits, and has earned 5 professional retirement designations.
She has appeared on numerous media programs, sharing her insights on retirement tax laws.

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