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Ask Ed Slott: Sharing an IRA Among Heirs
Tuesday, December 31, 2013
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My wife and I have just one grandchild from one of our two sons (with no current plans for a second). The other son and wife are trying but no luck yet. After our passing, we would like our IRA and Roth IRA to be shared by all grandchildren -- probably equally. How can we accomplish this?
You could name your “living grandchildren” as beneficiary at the time of your death, but many financial institutions might not accept that vague beneficiary designation without your grandchildren’s specific names. Moreover, minor grandchildren cannot sign the necessary paperwork to open an inherited IRA, cannot manage the investments, and cannot request the required minimum distributions.
You may instead need to consider naming a trust for your grandchildren as the beneficiary of your IRAs. You should consult with a financial advisor on the best way for this type of asset to pass to a minor.

If an IRA to Roth IRA conversion was done on Dec. 30, 2013, can it be recharacterized on Jan. 30, 2014, to avoid liability on the conversion? Can it legally be converted again in 2014 to avoid modified adjusted gross income (MAGI) limits?
And finally: If the conversion and recharacterization are done before April 15, 2014, how do I show this maneuver when I file my tax return?
A 2013 conversion can be recharacterized (that is, reversed) as late as Oct. 15, 2014. If it’s recharacterized in 2014, that 2013 conversion cannot be reconverted until more than 30 days after the recharacterization.
Follow the instructions on IRS Form 1040 and Form 8606 on how to show the moves on your tax return. You might want to consider having your taxes done by a professional for that tax year.

I have been checking out information online with regard to tax implications when withdrawing from a Roth IRA and cannot find the exact answer I want. I am over 60; I opened a Roth IRA recently and will be making periodic conversions, over time, from my traditional IRA.
I understand that after the Roth IRA has been open for at least five years, any capital gains become tax-free, along with the principle.
Despite the fact that I will be doing partial conversions for a number of years to follow, does the five-year starting date begin when I initially open the Roth IRA?
Because you’re over age 59½, there is no five-year clock with respect to the 10% early distribution penalty on conversion funds being withdrawn. However, for purposes of the earnings in the Roth IRA -- there are no capital gains in an IRA -- you must wait for more than five years before those funds can be withdrawn tax-free. Earnings are withdrawn last; withdrawals will be deemed to be made from your conversions first on a first in, first out basis.

If I have a 401(k) and a traditional IRA at the end of 2013, and then in 2014 roll the 401(k) into a traditional IRA, what happens to the RMD for the 401(k) -- since it will no longer exist? Do I have to take it before rolling the 401(k) into an IRA?
The 401(k) RMD must be taken before you roll over the remaining 401(k) funds to the IRA.

When Ann died at 66, she left her IRA to her two sisters: Mary, 69, and Susan, 71. The accounts were separated at the time and each sister was in charge of her own inherited IRA.
The older sister, Susan, started taking her RMDs but died at age 73, leaving the inherited IRA to Mary, now age 71.
Can the surviving sister, Mary, retitle the account and continue to take RMDs based on the older sister's age and applicable divisor? If so, how should this inherited IRA be named? Keep in mind that Mary would then be taking two RMDs from the original account -- one based on her age and applicable divisor and one based on Susan's age at death and applicable divisor.
When Mary inherits from Susan, Mary is a successor beneficiary: She is inheriting from a beneficiary and not from the IRA account owner. So the required distributions cannot be reset to the successor beneficiary’s age; they must continue based on the original beneficiary’s calculation. Example: Susan is age 40 when she takes her first required distribution. She is using a factor of 43.6. Each year that factor is reduced by 1. When Mary inherits from Susan, she continues using that schedule.

(3) Comments
Heirs mostly lose a large percentage of inherited IRAs to unnecessary taxes. Be sure your heirs know how to manage their new IRAs. You must consult your financial advisor about your case, since it is a complicated one.
Posted by KIMMY B | Saturday, January 04 2014 at 1:28PM ET
Provide your bank with the name, Social Security number, date of birth and physical address of the person that you intend to name as a beneficiary. Consult with your broker too. They will guide you to take a right decision.
Posted by STEVE B | Sunday, January 19 2014 at 9:01AM ET
Without any doubt, the question of heirs is always very complicated, with grandchildren not born it's even more difficult. If you want everything to be done properly do take a professional advice from a financial expert, it will help not only you in your decision, but your heirs in future to avoid disputable questions. Jull from http://personalmoneyservice.com/
Posted by Jull S | Tuesday, January 21 2014 at 9:01AM ET
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