Attorney & Mediator
Attorney & Mediator

IRA Mistakes

The rules for IRA distributions can be confusing. Many errors are made by beneficiaries after the death of the IRA owner. Here are a few to watch out for.

Owner’s Last RMD. If the decedent owner was over the age of 70 ½ and had not taken the RMD prior to death, the designated beneficiaries must take the distribution. The income tax will be reportable to each of the beneficiaries on a pro-rata basis.

RMD Failed Distribution: There is a 50% penalty for failing to take an RMD.

Roth IRAs: The owner and spouse are not required to take RMDs. Beneficiaries must take RMDs. If they fail, there will be a 50% penalty.

Rollovers: These are only available to the surviving spouse. There are no roll overs for beneficiaries.

Inherited IRAs: The beneficiaries cannot contribute to an inherited IRA. Inherited IRAs from different parents cannot be combined. An inherited IRA cannot be mixed with other retirement assets in an account.

Inherited IRAs are not Creditor Protected: While there is protection for IRAs for the owner from creditors, there is not protection for inherited IRAs. Therefore, inherited IRAs are available to the beneficiary’s creditors.

Probate Court cannot fix IRA problems: The IRS will not recognize state court orders that alter or fix IRA problems.

The rules are complex. If you are inheriting an IRA, get advice. This is not a good subject to do-it-yourself.