Spooky IRA Deadlines

You can't fight time. Don't try. 
We've talked before about the tax ramifications of halloween candy, but today I want to let you know if something much spookier: the October 31 deadline of notifying your inherited IRA custodian if a trust is a beneficiary. 

Don't lock the doors just yet, there is still time.

Per IRS publication 590:

Trust as beneficiary.   A trust cannot be a designated beneficiary even if it is a named beneficiary. However, the beneficiaries of a trust will be treated as having been designated beneficiaries for purposes of determining required minimum distributions after the owner’s death (or after the death of the owner’s surviving spouse described in Death of surviving spouse prior to date distributions begin , earlier) if all of the following are true:
  1. The trust is a valid trust under state law, or would be but for the fact that there is no corpus.
  2. The trust is irrevocable or became, by its terms, irrevocable upon the owner's death.
  3. The beneficiaries of the trust who are beneficiaries with respect to the trust's interest in the owner's benefit are identifiable from the trust instrument.
  4. The trustee of the trust provides the IRA custodian or trustee with the documentation required by that custodian or trustee. The trustee of the trust should contact the IRA custodian or trustee for details on the documentation required for a specific plan.
  The deadline for the trustee to provide the beneficiary documentation to the IRA custodian or trustee is October 31 of the year following the year of the owner's death.



This can be a big deal if you miss it, as the lifetime stretch out is lost and you are defaulted into the 5 year rule to take out all the IRA proceeds. Don't mess this one up, send in your paperwork and call your IRA custodian to make sure you are in compliance.

The basics on inherited IRA's are you usually want to defer any payments for as long as possible, to let the tax-favorable account grow. If you miss the deadlines, you get punished. Here are more dates to remember:
Here are key dates you should keep in mind to make sure you meet the IRS deadlines that apply to the options you choose.
  • December 31 of the original account owner's year of death. If the account owner died on or after his or her required beginning date,  the RMD for the year must be satisfied if it was not taken in full during the account owner's lifetime.
  • December 31 of the year following the original account owner's year of death. If you are taking RMD based on the life-expectancy method, distributions must begin by this date. If you are one of multiple beneficiaries, all beneficiaries must have established separate inherited IRA accounts by this date in order to calculate distributions based upon each beneficiary's own life expectancy.
  • September 30 of the year following the original account owner's year of death. Important for determining the beneficiary whose life expectancy may be used to calculate RMD (the designated beneficiary). If you're one of multiple beneficiaries of varying ages, all beneficiaries must use the life expectancy factor of the oldest beneficiary who has not taken a lump-sum distribution or disclaimed his or her entire interest prior to this date. However, if all of the beneficiaries have established separate IRA accounts by December 31 of the year following the account owner's death, then all beneficiaries may be able to use their own life expectancy factors to calculate their RMD. Check with your tax advisor to see if you are eligible for this benefit.
  • October 31 of the year following the account owner's year of death. Important if you are the trustee of a trust named as IRA beneficiary. The IRS mandates that trustees provide Vanguard with a copy of the trust document or a summary list of the trust's beneficiaries and conditions by this date. If this requirement is not met, or if the trust failed to meet certain other IRS requirements, it's not considered a qualifying trust eligible for more favorable RMD calculations, usually based on the life-expectancy of the oldest trust beneficiary.
    • (thanks vanguard for the good summary)

Remember, missing an important date can cost you or your clients big. Stay safe out there, and have a happy halloween.


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