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Spendthrift heirs take heed: Inherited IRAs are not retirement accounts.
Open a beneficiary IRA at the financial institution of your choice.
When opening the account, make sure you title it in the name of the decedent for your benefit.
© James Leynse/Corbis IRA owners beware: Two recent rules on retirement accounts could throw your planning into disarray. That means that inherited IRAs are treated like all other inherited assets and it’s open season for creditors.
One rule came out of tax court: IRA owners are limited to one 60-day rollover between IRAs in a 12-month period across all of their IRA accounts. In January 2014, Alvan and Elisa Bobrow made an appearance in the U. Tax Court to plead their case regarding a string of 60-day rollovers among their IRA accounts.
So, if you did one today, you couldn’t do another one until next July 23 or whatever today is,” says IRA expert Ed Slott, CPA, president of Ed Slott and Co., and author of “The Retirement Savings Time Bomb …
and How to Defuse It.” In November 2014, the IRS published a notice clarifying how the new rule works for those who have multiple IRAs.
“People would basically use this — not commonly, but occasionally — as basically a form of personal loans, like you could sort of borrow money from your IRA without tax consequences by sequencing together a bunch of 60-day rollovers and actually get a pretty long use of the money,” says CFP professional Michael Kitces, partner and director of research for Pinnacle Advisory Group in Columbia, Maryland.
That’s what the Bobrows tried to do, but one of the rollovers didn’t quite make the 60-day deadline. “The conclusion of the tax court was that not only had (they) clearly just botched one of the rollovers on timing, but the tax court’s interpretation was that this shouldn’t just apply to one IRA at a time — this should apply in the aggregate across all of the IRAs,” Kitces says. Now all IRA owners are limited to doing one of these 60-day transfers annually, no matter how many IRAs they happen to own. The rule is it’s a fiscal year; in other words, 12 months or 365 days.
Submit the trustee-to-trustee transfer request and begin taking required distributions from the beneficiary IRA.
You must take your first distribution in the year after the decedent died.
Please do not hesitate to sit down with a tax professional who can help you sort out these decisions with respect to your particular tax situation.