inheriting part of IRA and pension, what do i do?

[matty8199]

this stuff is all greek to me. i'm stumped as to what to do...

 

my aunt passed away in january. just this past week, i've gotten a letter from both her pension and one of her retirement accounts indicating that i'm a beneficiary and giving me several options...none of which i really understand other than "take a lump sum distribution," which i know means take the money all at once (and be taxed on it all at once).

 

i'm sorting through all the information i can find on how to handle this. it seems my best option for now is to rollover the IRA into an inherited IRA account, because i can then buy myself some time (from what i understand from reading all this), it says you can delay distributions for five years after the original owner's death...and the money continues to grow tax free but is taxed when you take distributions. it says you can take distributions at any time...is that right? prudential has given me the following options...

 

- move the money into an account with my name and SSN (i would think i don't want this, because then it's my account and i'd have to pay a 10% extra penalty on any distribution...is that right?)

 

- lump sum

 

- inherited IRA (which i think i understand, see abovE)

 

can anyone give me some advice here? i plan to find a financial planner to discuss this all with, but i'm so lost right now i'd like to get some more info first from you guys if i can. also complicating this is the fact that prudential won't tell me how much money there is until after i choose an option...

 

next (and slightly simpler) question: do the same rules apply to the pension? can i roll that money into an inherited IRA as well?

[Kevin20]

this stuff is all greek to me. i'm stumped as to what to do...

 

 

 

Here's a link that explains a bit:

http://www.forbes.com/forbes/2010/0628/investment-guide-stretch-ira-beneficiary-five-rules-inherited-iras.html

[matty8199]

i think i've got a good idea now - i definitely need to open an inherited IRA account and have the money directly rolled into that. then i must start taking RMDs next year (the year after she died, which was 2012), and i can take more than that if i want but i have to pay tax on any distribution and i must take at least the minimum. no 10% early withdrawal penalty applies since it's an inherited IRA.

 

i still don't know what to do with the pension, though. can i open a single inherited IRA account and roll both the pension and the retirement account into that?

 

and can my mom (if she wanted to) disclaim all or part of her portion and allow me to take the part she disclaims? we are the two beneficiaries on the IRA, and i believe we're the only two on the pension as well.

[Kevin20]

i think i've got a good idea now - i definitely need to open an inherited IRA account and have the money directly rolled into that. then i must start taking RMDs next year (the year after she died, which was 2012), and i can take more than that if i want but i have to pay tax on any distribution and i must take at least the minimum. no 10% early withdrawal penalty applies since it's an inherited IRA.

 

i still don't know what to do with the pension, though. can i open a single inherited IRA account and roll both the pension and the retirement account into that?

 

and can my mom (if she wanted to) disclaim all or part of her portion and allow me to take the part she disclaims? we are the two beneficiaries on the IRA, and i believe we're the only two on the pension as well.

 

 

Matty, from what I've seen, rather than go out and separately open an "inherited IRA", you work with the same IRA company to submit the application to open it with them. Therefore the "trustee-to-trustee transfer" is easily handled in house. It REALLY should be as simple as you identifying yourself to the IRA company and saying "I'm the beneficiary, what do I do now?". But, death seems to be infrequent enough employees at the IRA firm may not know what to do and even give you bad information. (My experience with US Bank is that they didn't know what to do, and weren't terribly interested in learning, and so did nothing instead.)

 

As far as how to allocate the money, I think it may depend on how the IRA trustee handles beneficiaries. In my case, I would have thought my late mother would have designated a 1/3 split for each of us kids. But nevertheless, US Bank has told me just to send them a letter(s) signed by all three of us, agreeing to whatever allocation we want. So that's a possibility -- you can see if the company will take instruction from you and your mother to split the proceeds however you'd want.

 

BTW, make sure it's not a Roth IRA. If it's a Roth, you can take the distribution all at once, tax free. Those other rules only apply to tax deferred traditional IRAs.

 

I don't know how to handle the pension, not sure if that can be rolled into an inherited IRA or not.

[bullthistle]

Generally speaking I would contact a discount stockbroker like Fidelity or Vanguard, visit one in your hometown if they have an office since you don't have a clue what the fees might be where your aunt had her account. I have a old friend who insists upon having a broker handle her trades because she will not do it online, she was recently charged $70 for a trade, and if you happen to get the wrong broker they could cost you money besides losing you some. Then go to Morningstar and check out some mutual funds and add a little each month because you don't have a clue what the market will do, like it could down big time tomorrow. Don't be like another freind that after her husband died she put the insurance money into a brokerage account where the balance only went down because she couldn't be bothered with learning.