Client is over 70 1/2 and passed away in 2018 and did not take their 2018 RMD yet. There are 4 non-spouse beneficiaries who are opening new inherited IRA accounts for their share. Does the 2018 RMD for the deceased client need to be paid prior to the rollover to each inherited IRA? Or can it be rolled into the new inherited IRA’s and distributed at a later date, but before 12/31?
If the client did not take his RMD for 2018 prior to his death, the beneficiaries would be responsible for taking it before the end of the year. Generally, when the IRA custodian is informed of the death, they will retitle the account as an inherited IRA. In this case, because there are four beneficiaries, there would be four inherited IRAs. The RMD would then be taken from these inherited IRAs. This ensures that the distribution is coded as death distribution on Form 1999-R and that the beneficiaries are taxed on the RMD amount.
Dear Ed Slott,
Thank you for all your wisdom.
My husband has a 457B plan with both money he contributed before taxes and money he rolled over by direct rollover from his employer upon retirement. The plan only lets you do a direct rollover with a check made payable to the bank and mailed to us. Would this be same as trustee to trustee transfer without any limits of the number you can do each year?
We want to actually do trustee to trustee transfer of his money out of this 457B plan and transfer it into traditional IRA plan at a bank, credit union in order to get a better rate of return. However, this 457B plan will not do trustee to trustee transfer and instead make check payable to bank/credit union and mail to us. Then we mail check to bank. They call this direct rollover. Would there be any limits on the number of these we can do each year? Any tax consequences doing it this way?
Would the receiving bank call this rollover or transfer? Please advise us.
Thank you kindly.
When it comes to moving money between retirement accounts, the terminology can be a little tricky. When funds are paid directly from a plan to an IRA this is called a “direct rollover”. The term “transfer” on the on the other hand is used when funds are paid directly from one IRA to another. Many plans will process a direct rollover by making the check payable to the receiving IRA custodian but mailing it to the plan participant. This perfectly fine. There would be no negative tax consequences. There are also no worries about the once-per-year rollover rule. This rule never applies to rollovers between employer plans, such as a 457(b) plan and an IRA.