What Practitioners need to know Regarding Distribution Rules of IRA

Saturday, August 8, 2015 Print Email

In a case where the owner of an individual retirement account dies and his beneficiary fails to comply with the requirements of after death minimum rules of distribution and the IRA rules of distribution, the Internal Revenue Service can subject him to penalties.

Practitioners are expected to be aware of the rules and work together with the custodian of the departed owner in ensuring that the expected post death rules are complied with. This is crucial since the beneficiaries of an inherited IRA may not be conversant with these rules. In a report released by the Treasury Inspector General in Administration of Tax, there is a need for IRS to notify and educate tax payers of the IRA’s compulsory minimum distribution needs.

It is assumed that custodians of IRA will take care of the IRA after death rules of distribution concerning the inherited IRA’s beneficiaries. Nonetheless, the IRA custodians are not expected to advice the beneficiaries of the IRAs inherited as IRA post death rules of compliance in regulations.

Practitioners and beneficiaries of the inherited IRA are expected to know the following:

a) In case the owner of an IRA dies after his expected date of beginning or on that day, the unpaid expected distribution amount for that year must be paid to the IRA owner beneficiary. This is important so that the beneficiary avoid penalties with IRS.

b) If the beneficiary of IRA owner is the surviving spouse, this spouse is not allowed to roll over or transfer the IRA account of the decedent to the IRA of the surviving spouse on any unpaid expected distribution attributed to the IRA’s owner deceased IRA.

c) In case of several non- spouse beneficiaries of an IRA that is inherited, then there are special titling and special rules that are applicable for purposes of allowing every beneficiary to use his life expectancy to determine the distribution payments of post death IRA to the beneficiaries.

d) If the beneficiary of the decedent’s IRA is a trust, then the rules of IRS are exceptionally complex. The trustee is expected an advisor’s assistance so that the IRA ‘s trustee can be in compliance with the IRA distribution rules of post death and avoid penalties.

Source: ReadyRatios

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