Thursday, December 2, 2010

IRAs (SEP, Inherited, Stretch) Highlight Mailbag

IRAs, IRAs, IRAs. We have a full plate (leftovers from Thanksgiving) of IRA questions in this week's Mailbag. These questions touch on topics such as SEP IRAs, inherited IRAs and naming the trust as the beneficiary of IRAs. We answer all of those questions below!  As always, we stress the importance of working with a competent, educated financial advisor to keep your retirement nest egg safe and secure.


The Slott Report,

The retitling of an inherited IRA account has been covered.

1. When the beneficiary of an inherited IRA dies (the original IRA owner and the beneficiary have both died) how is the IRA then retitled?

2. If an IRA beneficiary disclaims, does the person that then inherits the IRA simply retitle it without regard to it having been disclaimed?

3. When a beneficiary inherits an IRA, can the beneficiary immediately provide the custodian with a new beneficiary list for the inherited IRA, before the IRA is retitled?

Kind regards,

George Bumiller

We will take this in the three designated parts.

1. Assuming the beneficiary of the inherited IRA named their own beneficiary when they inherited the IRA, then at the death of the beneficiary, the account would be retitled with the name of the original owner for the benefit of the new beneficiary. The life expectancy factor being used will not be extended for the new beneficiary, it will continue with the term in use by the original beneficiary.

2. When doing a disclaimer, within nine months after the date of death, it is as if the person disclaiming never existed. Therefore, if a primary beneficiary disclaims, the contingent, next in line, will be the new owner. The title of the account would be the inherited IRA, name of deceased owner, for the benefit of the new owner.

3. The general answer is YES, but you always want to check the custodian first to see what they will or will not allow.


We have an A-B trust with no provisions for our IRAs. My wife's traditional IRA is worth about $600,000 with beneficiaries being our 3 children. My IRA is smaller with my wife as the beneficiary. Do we need an IRA trust to ensure that the children as beneficiaries stretch their portion of their IRAs rather than cash and owe lots of income taxes or does the trust need to be the beneficiary of the IRA or neither of the two?

What needs to be done to insure that the children will stretch their portion of this traditional IRA?


You bring up a good question about insuring the stretch IRA. To absolutely insure that the beneficiaries, in this case the children, will use the stretch payouts, you should consider naming a trust as beneficiary of the IRA. You will need to work with an attorney who knows the IRA rules, especially the IRA trust rules.


My wife is a self-employed consultant. She started a SEP IRA and maxed that out and then started an individual 401(k) plan. How much can she contribute to the combined plans? Our joint taxable income is over $250,000. She is 56 years old.



Most SEP IRA documents state that SEP IRA must be the only plan for the business. A self-employed individual cannot have a SEP IRA and individual 401(k) plan. You can only have one or the other.

By IRA Technical Consultant Marvin Rotenberg and Jared Trexler
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