Topic: Individual Retirement Accounts (IRAs)
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We have a customer who has named her two children as beneficiaries on her IRA. If one of her children predeceases her, who inherits that child’s interest in the IRA? The owner would like the deceased child’s interest to pass to their estate rather than the other living child.
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If one beneficiary dies before the IRA owner, we believe that beneficiary’s share would be divided equally among the other surviving primary beneficiaries. If the owner wants the estate of a deceased child to inherit that child’s portion of the IRA, then the owner should consult with an attorney regarding the proper way to amend…
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Are banks subject to the Department of Labor’s new Conflict of Interest Rule? Do you know anything more about this subject?
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Yes, banks may be subject to the Department of Labor (DOL) rule regarding conflicts of interest, depending on certain factors discussed below. The rule, which begins to take effect on April 10, 2017 (with full implementation by January 2018), expands the definition of a “fiduciary” under ERISA and the Internal Revenue Code to cover anyone…
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We have a customer who opened a non-spouse inherited IRA but has not been taking required minimum distributions (RMDs). Are we liable for not sending the customer notice of the RMDs?
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In our view, you are not required to notify non-spouse inherited IRA account holders of their beneficiary RMD calculations and due dates. IRS rules require trustees to send out information about RMDs to “individuals or entities, at the time, and in the manner, prescribed by the Commissioner in revenue rulings, notices, and other guidance .…
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A customer who lives in California was the sole beneficiary of a traditional IRA and established a beneficiary IRA with our bank. Does she need her estranged spouse’s consent to designate a non-spouse beneficiary on that account?
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No, we do not believe that your customer needs to obtain the consent of her spouse in this situation. However, because this case involves California law, you also may wish to consult with your bank counsel. Community property states automatically grant an interest in property owned by one spouse to the other spouse in most…
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When a non-spouse inherits an IRA, can they add their own beneficiaries to the IRA?
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The quick and general answer to your question is yes, but the facts are important. The rules for inheriting IRA assets can be complicated and may depend on the initial beneficiary's relationship with the original IRA owner, the type of IRA owned, and the age of the initial beneficiary, among other things. For example, a…
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We have a traditional IRA for a customer who recently died (after reaching the age of 70½). The IRA has five beneficiaries, who have requested that we make lump sum distributions for their shares of the account. Do they need to open new IRAs before we distribute their shares?
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We are not aware of an IRS requirement that IRA beneficiaries open new IRAs before taking lump sum distributions. Of course, the IRS rules may impose taxes on such distributions, but they do not prohibit an IRA trustee from making a lump sum distribution when requested by a beneficiary. However, we understand that there may…
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Is a Health Savings Account (HSA) treated like other checking/savings accounts for remittance or does it follow the IRA guidelines for remittance?
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A Health Savings Account (HSA) should be treated like a savings or checking account under the Uniform Disposition of Unclaimed Property Act (UPA), subject to the discussion below. An HSA is a custodial account that may be established as a savings or checking account. Unlike an individual retirement account (IRA) — which is specifically addressed…
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If a customer is over 59½ years old but under 70½ years old, can we charge an early withdrawal penalty for a certificate of deposit (CD) in an individual retirement account (IRA)?
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Once seven days have passed after your customer first opens the IRA CD account, you may charge an early withdrawal penalty if permitted by your account agreement and disclosures. We are not aware of any IRS regulation that would prohibit you from charging an early withdrawal fee (after seven days have passed) when the CD…
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One of our IRA customers died last year. The customer had reached the age for required minimum distributions (RMDs), but he did not take his distribution for 2015 before dying. The IRA had two beneficiaries, a son and daughter. The son opened an inherited IRA, and the daughter took her portion as a lump sum distribution. Should we have taken out the RMD before distributing the IRA to the son and daughter?
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No, your institution generally is not responsible for taking out the RMD (unless you have agreed to do so in your account agreement). When an IRA owner dies after reaching the age of 70 ½, the IRA’s beneficiaries are responsible for distributing the owner’s RMD for the year of death — it is not your…
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Does Illinois allow IRA beneficiaries to name successor beneficiaries?
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If your account agreement does not prohibit the beneficiary from naming a second beneficiary, we believe the beneficiary may do so. We are not aware of any law or rule that prohibits an IRA beneficiary from naming a successor beneficiary.