By Sarah Brenner, JD
Director of Retirement Education
Dear Ed Slott and Company,
I am a longtime subscriber, having met and talked with Ed at several industry conferences, going back well over 20 years. Which, with all of Ed’s great work and active networking, puts me in a pretty big club!
In any event, a CPA has turned to me with a problem.
A client of his passed away earlier this year with $1.7M in her IRA. Her Estate was the beneficiary of the IRA. Her 80+ year old siblings are the beneficiaries of the estate. I know, not great facts. But, it gets worse.
The CPA consulted with the executor and the broker who handled the account. They all agreed not to do anything until hearing more from the CPA.
A few weeks after that, the broker and the Executor decided to liquidate the holdings in the IRA, even though an Estate IRA was never opened. They then sent a check to a Bank account for the Estate, which is of course a checking account, not an IRA.
I am told that IRS regulations prevent an estate from rolling back into an IRA. Is this true?
Thanks for your support over the years! Unfortunately, the news here is not good. The rules are very strict when it comes to nonspouse beneficiaries, such as an estate, and rollovers. Once a distribution from an inherited IRA is paid to a nonspouse beneficiary, it is irreversible. It cannot be rolled over or put back into an IRA. Only a spouse beneficiary can roll over a distribution from an inherited IRA. We see this mistake made far too frequently and unfortunately there is no fix.
I have a question about clients who have inherited IRAs and need to take an RMD for 2021 but did not take their 2020 RMD because of the Covid RMD waiver. Will they use the life expectancy number they used for 2019 RMD and subtract 1 or subtract 2 from that number to account for the skipped 2020 RMD?
We are getting many questions on how to calculate RMDs for 2021. There is a lot of confusion in the wake of the 2020 waiver under the CARES Act. Here is how it would work. A nonspouse beneficiary who is required to take RMDs based on life expectancy would subtract 2 from the factor that was used in 2019. Even though no RMD was required for 2020, it is still counted when determining the life expectancy factor for 2021.