[IwannabeaCPA2017]

Hey guys,
so some of you may have been following some of my posts. My grandma passed away about a month ago and I just found out I was the beneficiary to some of her investment account. Apparently, she had an IRA account that invested in individual stocks (some of these are big name companies like Apple and NFLX). I was wondering how would this whole process work- Can I take her initial basis and let the stocks continue to grow? – I believe the account is pretty diverse in several industries. Im not too familiar with this area. Any insight would be greatly appreciated.

Hope y’all had a happy new year!!

[jpj230]

I'm sorry for your loss.

If it's a traditional IRA, the entire distribution is a taxable event. There's no basis in it. Your best bet is to call the custodian and ask them about inherited IRA's, commonly referred to as an IRA beneficiary distribution account. If your grandma was over 70.5, I believe the RMD's will be based on what her life expectancy was.

[Troys22]

Sorry for your loss.

I believe you would receive a carryover basis in the IRA. No step-up in basis with an inherited IRA. Also, I would contact the custodian as mentioned above and ask about what is called a “stretch IRA”. This should allow you to take required minimum distributions (RMDs) over your life expectancy. This option would allow the account to grow while receiving the RMD. You would simply create a separate Inherited IRA account in your grandmothers name but FBO yourself. There are also several other options as well (cash out immediately, cash out over 5 years, etc.).

The Attorney handling your grandmothers estate or trust administration should be able to help you out with this.

Hope this helps!

[woof]

We just dealt with a very complex inherited IRA for a client. You have some options if it is left to you as an individual (which it sounds like it was). Some of your options are impacted by the age of your grandmother when she passed. You should have the option to take the RMD's over your life expectancy, and there are tables floating around the internet that would give you a rough estimate of how that's calculated. However, I would caution you that if you make a mistake in how you handle it, the entire IRA becomes taxable immediately. The custodian is a good place to start, though we found that our custodian made some pretty significant mistakes in their advice, and ultimately disclaimed responsibility in the fine print of their agreement. This website has some good resources in handling of these accounts:
https://www.thebalance.com/options-for-non-spouse-beneficiaries-of-inherited-iras-3505448

[Recked]

Sorry for your loss.

You're a CPA candidate, time to learn how to do some tax research.
Pub 590 B – Distributions from IRAs.
Page 5, inherited IRAs.
It would be best if you go directly to the source for the most accurate information.
https://www.irs.gov/pub/irs-pdf/p590b.pdf

Whatever you do, don't take it lump sum in one year.
This pub was very beneficial to me when I was in a similar situation to yourself, and it actually helped me correct the attorney handling the estate and saved me tax.

[ryan.andrew6]

No, you can't just leave it and let it grow. If you don not wish to liquadate you will have to set-up a new IRA (in your grandmothers name – FBO you, they will usually have a account type called inherited IRA), this can be weird depending on the custodian and brokerage house, be sure to consult them as well as a financial advisor – this is sometimes referred as a “stretch IRA” it's not really a different account it's just a choice the IRS gives you on how to handle the assets. You will also have to start taking RMDs immediately regardless of Traditional or Roth, how much depends on many factors. Inherited Roths will generally be tax free (like usual), although there are some situations dependent on account holding periods where earnings will be taxed. If there is basis in a traditional IRA it will carryover not step-up, though there usually isn't basis unless you rolled in a roth account.

Also, when clients are younger when they inherit an IRA we will sometimes recommend they they open an IRA of their own and just contribute the RMD to the second IRA that way it's tax neutral however this is not always preferable because it cuts into the $5500 limitation.

[Author]

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