Welcome Guest. Register Now!  



Reply
 
LinkBack Thread Tools Search this Thread Display Modes
  #1 (permalink)  
Old 03-17-2015, 10:04 PM
Member
 
Join Date: Jan 2014
Posts: 33
Distribution of RMD when trust is Inherited IRA beneficiary

An Inherited IRA has a trust as beneficiary. When the RMD is paid to the trust and the trustee in turn distributes the RMD to the individual beneficiary of the trust, how is that reported on the K-1 that is given to the individual? As interest income?



Digg this Post!Add Post to del.icio.usBookmark Post in TechnoratiFurl this Post!Reddit! stumble!bookmark in google!Share on Facebook!
Reply With Quote
  #2 (permalink)  
Old 03-19-2015, 02:21 AM
Moderator
 
Join Date: Oct 2010
Posts: 4,835
An Inherited IRA has a trust as beneficiary. ========>> There may be some community property rules in the state in which the contributor resides, or some marital rights attaching to the IRA in non-community property states, but a regular IRA is owned by the contributor. There are a number of reasons the IRA owner might have chosen to leave the IRA to the trust. For example, he has a disabled spouse, a child receiving public benefits, an unequal distribution of proceeds or some other complication. Still, tax law gives parties valuable guidance for those cases in which a trust is named as beneficiary of an IRA. So,it is very common for IRA owners to designate a trust as the beneficiary on their IRAs as it generally gives the IRA owner some degree of control over how the assets are distributed after he/she is deceased. IRA owners can name trusts as beneficiaries as a way to better control post-death distributions and restrict access for beneficiaries who might otherwise squander large inherited IRAs.but , Trusts however, create unique problems and tax complications even when executed perfectly. IRA trusts cannot provide the answers for tax and personal solutions that many IRA owners are looking for. And quite often trusts are poorly drafted and cause more problems than they are worth. The other reason to name a trust as beneficiary is not to restrict the beneficiary, but to insure that the IRA funds are protected from creditors /bankruptcy. Since the trust assets are not actually owned by hisbeneficiary-ies, if his beneficiary is pursued by creditors or succumbs to bankruptcy, the trust assets are protected.

When the RMD is paid to the trust and the trustee in turn distributes the RMD to the individual beneficiary of the trust, how is that reported on the K-1 that is given to the individual? As interest income?===>>>>>As the trust was named as beneficiaryof the IRA, it will be necessary for the trustee of the trust to terminate the IRA and pay all the income taxes due on the termination within 5 years of the IRA owner’s death; in most cases the law will support the beneficiaries if they choose to take the IRA as an inherited stretch IRA, which will normally allow the beneficiaries to either take the distributions ratably over the life expectancy of the oldest beneficiary or over the period of time the IRA owner would have taken the balance of the IRA had he not died prior to full distribution. Under IRS rules, the beneficiary of any inherited IRA including a trustmust make mrd each year on a schedule based on the beneficiary’s expected lifetime. The distributions are taxed as ordinary income in the year they are made. Making a trust the beneficiary of an IRA doesn’t alter the rmd rule.. Essentially, this means the trustee makes required minimum distributions and passes the money on to the beneficiaries.



Digg this Post!Add Post to del.icio.usBookmark Post in TechnoratiFurl this Post!Reddit! stumble!bookmark in google!Share on Facebook!
Reply With Quote
Ads
Reply


Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

vB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Inherited IRA distribution jctrumble1 For 2013 1 02-19-2014 03:04 AM
What happens to an Inherited Account when the Owner Dies prior to their Required Beginning Date (RBD) and the beneficiary is other than a Spouse? TaxGuru IRA/Sep 0 12-20-2011 11:43 AM
What happens to an Inherited Account when the Owner Dies prior to their Required Beginning Date (RBD) and the Spouse is the beneficiary? TaxGuru IRA/Sep 0 12-20-2011 11:37 AM
IRA Beneficiary Distribution Form mlconway05 IRA/Sep 0 12-10-2010 04:47 PM
Inherited IRA distribution PERPLEXED IRA/Sep 0 08-26-2009 11:43 AM

Follow us on Facebook Follow us on Twitter Google Buzz Rss Feeds

» Categories
 
Individual
 » Income
 » IRA/Sep
 » Medical
 
Corporations
 » Payroll
 
Forum for CPAs
 
Financial Planning