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February 28, 2009

I inherited a traditional IRA from my uncle who was 65 years old when he died. Can I rollover or transfer ……..

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I inherited a traditional IRA from my uncle who was 65 years old when he died. Can I rollover or transfer ……..

I inherited a traditional IRA from my uncle who was 65 years old when he died. Can I rollover or transfer the account to my own IRA? My uncle died in July of last year.

No.  You cannot rollover or transfer an Inherited IRA to your own IRA, because you are a non-spouse beneficiary. A non-spouse beneficiary is defined as a beneficiary that is not the surviving spouse of the deceased IRA owner.  As a non-spouse beneficiary of an IRA owner who died before his required beginning date (RBD), you are required to have the amount moved to an inherited IRA.  An inherited IRA is one that is registered in the name of your uncle’s ( the decedent) and your names, using your social security number.  An example of a registration that satisfies the IRS requirements is: IRA FBO Jim P, Beneficiary of Tom S (Deceased)”. Any variation of this will work, as long as it is clear who is the beneficiary and who is the decedent.  Some financial institutions may shorten ‘beneficiary’ to read ‘bene’, ‘beneficiary of ‘to read ‘B/O’ and/or ‘deceased’ to read ‘decd’.

Depending on the financial institution’s operational requirements, you may need to move the assets to a new account number, or they may reregister the same account number used by your uncle. Any method will satisfy IRS requirements, as long as distributions are reported in your social security number.  If the assets are moved to a new account number, it should be done on a non-reportable basis, i.e. it should not be done as a distribution or contribution.

Your distribution options are as follows:

  • Distribute the assets over yourlife-expectancy.  Under the life expectancy method, you must take a required minimum distribution (RMD) amount each year. Your first RMD amount would be due by December 31 of this year (the year after your uncle died). You can withdraw more than the RMD amount- up to the entire balance – at anytime.
  • Distribute the assets under thefive-year rule. Under the five year rule, the entire balance must be distributed by December 31, of the 5th year, following the year your uncle died. Since he died in 2007, the assets must be fully distributed by December 31, 2012. Distributions before then are optional.

If you fail to withdraw your RMD amount by the deadline, you will owe the IRS an excess accumulation penalty of 50% of your RMD shortfall. For instance, if your RMD for the year is $10,000, and you withdraw only $2,000, you will owe the IRS an excess accumulation penalty of $4,000 ($8,000 x 50%).

Distributions from your inherited IRA cannot be rolled over; however, you can transfer amounts to another inherited IRA, providing the receiving inherited IRA is registered in both your’s and your uncle’s name.

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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