By Andy Ives, CFP®, AIF®
Looking for your help. Husband has an inherited IRA (from his dad prior to the SECURE Act) and was taking RMDs using the single life table. Husband passes away in 2020 and leaves the inherited IRA to his wife who is age 65. What are the wife’s options for distribution?
Under the SECURE Act, if a beneficiary owner of an inherited IRA dies in 2020 (or later), the next beneficiary in line (the successor beneficiary) is bound by the 10-year payout rule. Even if the successor beneficiary would otherwise be allowed to stretch payments as an eligible designated beneficiary (i.e., spouse, disabled individual, etc.), that person is still saddled with the 10-year rule. There are no annual RMDs over the 10 years, but the wife must empty the account by the end of the 10th year after the year of her husband’s death.
Hello. I recently inherited an annuity from my father. His advisor advised me to take a lump sum distribution from the annuity and deposit into my inherited IRA. I subsequently received the check for the lump sum distribution and handed it over to her for deposit into my inherited IRA. She stated that as long as I did not cash the check, I would not be taxed until the funds were eventually withdrawn from the inherited IRA. However, I now have received a 1099-R for the funds. The original annuity company stated that we should have completed a non-taxable transfer. What is the best way to clear up this situation with the IRS?
Thank you very much for your time!
After reading the first few lines of your question, I thought, “Oh, no.” Unfortunately, you were given bad information from both your father’s advisor and the custodian where the check was deposited. Non-spouse beneficiaries cannot do 60-day rollovers with inherited money. Only spouses can. The original annuity company is correct in saying the money should have been moved via a non-taxable transfer.
My “oh no” reaction was because this mistake cannot be reversed. The full amount of the distribution from the IRA annuity will be taxable (hence, your receipt of the 1099-R). In addition, you will need to remove the amount rolled into the inherited IRA. Since the annuity money was not eligible for rollover, it is technically an excess contribution in the inherited IRA and subject to a potential penalty.