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An IRA customer died, leaving her trust as her beneficiary. The deceased customer’s son is the trustee of the trust, and he requested that the funds be transferred to a non-IRA savings account for the trust that he had opened. We closed the IRA as a death distribution and cut a cashier’s check payable to the trust. Since the IRA was closed as a death distribution, and not as an internal distribution to an IRA product, will the 1099-R that we issue have tax implications? – IBA Compliance Connection

IBA Compliance Connection

Your go to source for compliance!

An IRA customer died, leaving her trust as her beneficiary. The deceased customer’s son is the trustee of the trust, and he requested that the funds be transferred to a non-IRA savings account for the trust that he had opened. We closed the IRA as a death distribution and cut a cashier’s check payable to the trust. Since the IRA was closed as a death distribution, and not as an internal distribution to an IRA product, will the 1099-R that we issue have tax implications?

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Yes, the trustee’s decision to place the IRA funds in a savings account will have tax implications, although we are not qualified to address exactly what those tax implications will be. Generally, when an IRA is distributed to a beneficiary, the beneficiary must roll over the distribution into a new IRA within sixty days of the IRA distribution. Here, the trustee failed to roll over the IRA distribution into a new IRA, since he placed the funds into a non-IRA savings account, so it appears that the entire distribution will be taxable.

For resources related to our guidance, please see:

  • IRS Publication 590-A, Time Limit for Making a Rollover Contribution (“You generally must make the rollover contribution by the 60th day after the day you receive the distribution from your traditional IRA or your employer’s plan. . . . In the absence of a waiver, amounts not rolled over within the 60-day period don’t qualify for tax-free rollover treatment. You must treat them as a taxable distribution from either your IRA or your employer's plan. These amounts are taxable in the year distributed, even if the 60-day period expires in the next year. You may also have to pay a 10% additional tax on early distributions as discussed under Early Distributions in Pub. 590-B.”)