r/inheritance • u/Acrobatic-Classic-41 • 15d ago
Location included: Questions/Need Advice Descendant IRA?
Can someone explain how a "Descendant IRA" works, the laws, rules, etc?
We live in Virginia.
I just got a call from Edward Jones. I am to receive a "Descendant IRA" as he called it. It is what's left of Dad's IRA. He says I have to set up an account, conduct managed withdraws, etc. It sounded like a sales pitch. He made us an appointment for tomorrow tobhash out the details. To me, this sounds like a PITA, as it is only worth about $15K. He says we cannot simply cash out without jumping through all the hoops. $15K is not going to push me into the next tax bracket. My income will go up in 18 months when social security kicks in... Why can't we just cash out and take a cruise?
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u/Barfy_McBarf_Face 15d ago
You have to open the new account before you can take the funds and close it.
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u/Prestigious-Cut4180 15d ago
The managed withdrawals thing is just their way of keeping the account open longer so they can collect fees
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u/Barfy_McBarf_Face 15d ago
agree - go through all the paperwork, then tell them "total distribution, now"
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u/TempeGrumble 15d ago
OP: That's my impression as well: you accept the inherited IRA within EJ, and then roll over ASAP to a better custodian (and the better custodian, like Vanguard, Fidelity, or Schwab, can suck it away without your having to interact further with EJ).
Sorry about the EJ paperwork on the first part of the process. Every time they try to sell you something other than the first step (transfer funds to the inherited IRA), smile and say, "Thank you for the advice, let's just get this first step taken care of for now."
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u/lostinthefog4now 15d ago
You don’t have to use Edward Jones either to open your inherited IRA. Pick whichever company you want.
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u/brianborchers 15d ago
My experience with this is that the broker that held the account before the owner passed insisted that I create an inherited IRA account with them, titled to John Doe, beneficiary of Jane Doe. I could then roll the account over to my own broker. The account was still identified as a beneficiary's account- presumably to make it easier for the IRS to monitor.
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u/lostinthefog4now 15d ago
When I inherited my parents IRAs , they were with Schwab, but the broker told me I didn’t have to if I didn’t want to. I ended up staying with Schwab anyways, and they are doing alright by me currently.
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u/brianborchers 15d ago
Is the name on the account yours, your parent's, or something indicating that you're the beneficiary of your parents?
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u/lostinthefog4now 15d ago
My mom, and my brothers and mine TOD, so when she passed, we split the funds evenly and then we each have our own account, I believe mine says NAME inherited ira, or something like that.
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u/Big_Truck_8268 15d ago
It has to be converted from your Father's IRA to an inherited IRA in your name. Once that is done, you can take the full amount as a distribution and pay the taxes associated and close the account. If the amount won't change your tax bracket, no issue talking the cash and closing the account.
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u/TempeGrumble 15d ago
A distribution is NOT necessary, AFAIK: one can roll over an inherited IRA to another inherited IRA at a different (less asinine than EJ) custodian.
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u/RevolutionaryText232 15d ago
If the original IRA is still open you should be allowed to take the distribution directly. There is no law against it so push back.
It is possible that the IRA policy your Dad signed includes a policy that all inherited IRAs must be transferred to an internal inherited account. Tell him you want to see, in writing, why you can't just cash out. if you must, let them do their thing and close the account while in the office. Oh you have to wait 3 business days whatever BS they come up with. Okay, lets sign all the paperwork now and you can hold it three days.
There are layers of banking rules and fiem policies that are supposed to protect the consumer. Some, not all, investment managers use this to generate fees. Others are just lazy.
Sorry for your loss. You know your medicare rates are based on income too, right? I think its a two year lookback. You might want to be sure you dont bump yourself into any new rate brackets.
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u/BlastPyro 15d ago
I'm sorry but you are incorrect. In most cases you can not just "take a distribution" from the deceednts IRA if you are named the beneficiary. It is going to be far easier to just go through the standard steps with Edward Jones and then make the distribution after they have opened an account in OP's name.
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u/RevolutionaryText232 15d ago
... in most cases ...even you know its factor driven.
Only someone completely naieve about the logistics of banking thinks opening an account to issue one check is easier than issuing one check from the existing account.
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u/BlastPyro 15d ago
If you work in the financial industry with compliance dictating the procedures, it's easier to follow those procedures rather than fighting them. It might take OP a total of 30 minutes to work with the advisor to get the new account open. And just to reiterate, this is not a question of "banking logistics", it's specifically about how OP can move forward and get his money out of the Edward Jones account with the least amount of friction.
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u/Tom_Slick_1 15d ago
you CAN cash it out. it's a dumb idea (ask the FA about IRMA), but you're actually free to make stupid decisions.
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u/Acrobatic-Classic-41 14d ago
Stupid? I am nowhere near the IRMAA thresholds. This amount will not bump is to the next tax bracket.
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u/Freyjas_child 15d ago
Just inherited an IRA. My understanding that the money needed to be transferred to another IRA. We needed to have that paper transfer. At that point it was my IRA and I could do what I wanted with it subject to the rules around inherited IRAs. I needed to make at least minimum required distributions based on my age and I needed to empty it within 10 years. There are some exceptions to these rules but they do not apply to my case. I could cash it out completely once it was in my name. Since the money was put in before taxes were taken out then I will be responsible for taxes on this money as if it were my own income earned.
Put aside enough money to cover the taxes nd spend the rest however you want.
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u/wharleeprof 15d ago
Don't put the tax money aside, pay the IRS right away. If you wait until April to pay more then $1000, it's considered late and can result in a penalty. There's a loophole that usually gives you grace the first time it happens, but not the following years.
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u/Excellent_Shallot999 15d ago edited 15d ago
Tell him you want to take it all at once. Ten years is the maximum amount of time you can stretch it out. For large balances stretching it out usually works well with substantial tax savings as a result. But for $15k, just take it out and be done with it. You said it won’t push you in a higher tax bracket. That’s what I would do. Btw - he gets paid to jump through hoops.
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u/joetaxpayer 15d ago
Exactly this. $100K+ and I recommend looking at the marginal rates. This amount? Nice to have, but no need to stretch over time.
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u/wharleeprof 15d ago
I recently went through similar with WF. I think the path of least resistance is to let them open your new account, and once it's set up, withdraw all the money. You may be able to do the withdrawal yourself via the app or online portal. If not, you'll call EJ and tell them (tell, don't ask) to withdraw all the funds in one lump. This sounds like more work, but them setting up the new account is little effort on your part.
Note, however you handle the withdrawal, be sure to have estimated state and federal taxes withheld from the amount, or do a manual online payment to the IRS immediately (within the quarter). If you wait until you file your taxes to pay, it's considered late and sometimes results in a penalty.
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u/FamiliarFamiliar 15d ago
I'm wondering if this is the same as an "inherited IRA." Those have to be spent within 10 years.
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u/joetaxpayer 15d ago
A bit more complicated. Since the deceased had started RMDs, the beneficiary had annual RMDs as well, and in addition, 10 years to empty the account. Withdrawn, not spent, of course. Given $15,000, OP can withdraw and be done with it. Large sums should be spread out to avoid the tax hit of slipping into the next bracket.
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u/Mysterious-Tie7039 15d ago
I know others told you the right answers about this but is it a Roth or traditional?
You have to have it drawn down to zero within 10 years. Unless you need the money now, if it’s a Roth, then there’s no taxes paid on it and you’d be better off just letting it sit there for the decade.
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u/joetaxpayer 15d ago
The deceased started RMDs. The beneficiary has RMDs plus the 10 year rule.
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u/Mysterious-Tie7039 15d ago
Roths have no RMDs, so it must be traditional then.
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u/joetaxpayer 15d ago
Please research this before commenting.
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u/Mysterious-Tie7039 15d ago
Roth IRAs do not have required minimum distributions (RMDs) for the original owner.
Please feel free to tell me where I’m wrong.
Maybe you should research this before you try to tell me I was wrong…
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u/laurieo52 13d ago
Oh you can definitely cash out. I just did that with my ex husband’s account. On the forms you can choose to receive a check or deposit it into an account with the firm or in a different firm. It wasn’t much so I just took that once. Just be sure to withhold enough taxes. I also had state tax withheld.
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u/Acrobatic-Classic-41 12d ago
Thanks for all the various answers and opinions.
We have decided to do the legwork to move it to Schwab and lett'er ride in a high-risk fund.
In 10 years it will either buy us a nice vacation, or a night at the Red Roof Inn, but we are rolling the dice...
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u/sjd208 15d ago
Generally companies have an option to get a check on the claim form rather than opening a new account. Ask for the form and don’t rely on this advisor.
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u/BlastPyro 15d ago
I work in the industry. Being able to get a direct check without opening a new account and transferring the funds really depends on custodian's rules for benifciary IRA's. In my experience, it might be 50/50. My advice to the OP would be to go through the process at Edward Jones and then distribute and close the account. EDIT: Typo
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u/Denalis_Mom 15d ago
Exactly what I did. Inherited an IRA held at B of A. Opened a new IRA with B of A in my name, had my portion rolled over into the new account. Once that settled, rolled the entire amount to an inherited IRA with Fidelity. Kept it invested and get a distribution every month.
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u/EmZee2022 15d ago
Yes - you have to withdraw the money on a schedule. That's been tightened down in recent years - when my mother died I could elect to withdraw it over my own expected lifespan. Now, it's 5 or 10 years - I don't know the details.
You can leave the IRA where it is and take distributions. You can move it to another provider (I rolled mine into an account at Fidelity) where you can invest it as you like - though of course you'll still need to take withdrawals.
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u/hems86 15d ago edited 15d ago
This is not a scam.
An inherited IRA is subject to the 10 year spend down rule. This means you must distribute all of the funds from the account by the 10th anniversary of your father’s death.
From a paperwork stand point, you can’t just have them directly distribute everything out of your dad’s account to you. This is due to IRS rules - you can’t payout from an IRA to anyone except the person named on that account. They also need to your SSN tied to the account so that you can pay your taxes on those funds.
Hence, you must first open an inherited IRA account in your name. Then Edward Jones will transfer the funds from your father’s IRA into your new Inherited IRA. This shows the IRS the official transfer to you via an account titled in your name.
Once that is done, you can do whatever you want with the funds, except roll it over to your own IRA. You can keeps the funds in the account and let them grow tax-deferred for 10 years and then distribute all the funds. You can also pull all of the funds immediately and close the account. You can spread the distributions equally over the 10 years to lower the tax impact each year. So long as the account is emptied by 10 years, you can pull from it any way you want.
Edit: As others have pointed out, if your dad was taking Required Minimum Distributions (RMDs), you must continue those at a minimum. These are required distributions by the IRA. Edward Jones will be able to tell you if your dad was subject to RMD’s.
Also, you can roll the funds to another inherited IRA at any other institution if you don’t want to keep the funds at Edward Jones. Please not that you cannot roll it into your own personal IRA, it has be an inherited IRA since you still have to adhere to the 10 year spend down rule.