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I am liquidating a deceased owners IRA (I am executor).

I have opened an Inherited IRA at another institution.

Institution1 has to sell the stocks, open an Inherited IRA for me. I have to initiate the transfer from Institution1 Inherited IRA to Institution2 Inherited IRA.

Questions:

  1. Are there tax implications for me?
  2. Fees?
  3. Do I get to keep this as my IRA and manage it or do I need to withdraw it all at once or over time?
  4. Anything I didn't take into account since I am new to this?
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  • Question 3 confuses me, seeming contradict itself.
    – RonJohn
    Jul 31, 2021 at 16:05
  • A number of facts are missing: 1) type of IRA (Roth/Traditional) 2) when did the IRA owner die 3) any named beneficiaries in IRA as OP mentions they are executor 4) who are the beneficiaries as executors are obligated to follow probate/will instructions. Jul 31, 2021 at 17:00
  • Why not leave the funds at institution 1? @MorrisonChang it reads to me as though this person is the beneficiary and executor.
    – quid
    Jul 31, 2021 at 17:05
  • Why does Institution 1 have to sell the stocks? If they are publicly traded, shares can be transferred "in kind". Similarly, when I distribute funds from my IRA, I don't need to sell, transferring $10000 worth of stock is a $10000 distribution. In the old days when commissions were high, this was a bigger issue, of course. Aug 1, 2021 at 21:52
  • @JTP-ApologisetoMonica I doubt whether stock shares can be transferred "in kind" from an IRA in Institution A to an IRA in Institution B. Were't the cases where you succeeded in taking an in-kind distribution from your IRA to your taxable brokerage account all where both accounts were in Institution A? I remember a discussion of this point in a different question. Aug 2, 2021 at 14:28

1 Answer 1

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Many assertions and statements in the OP's question don't match up with what one might expect to have happened and I am not sure if this is because the OP is using incorrect terminology or because he has misunderstood what he has done.

In general, an executor of a will (or an estate if the decedent was intestate) has only a small role to play (if any at all) in what happens to IRAs belonging to the decedent because generally IRAs pass to the beneficiaries recorded with the custodian of the IRA, and are not passed on through wills. The executor must, of course, give the beneficiary (or the IRA custodian) an official copy of the death certificate of the deceased, and if the deceased was required to take an RMD from the IRA but had not taken all the RMD prior to death, then the executor must take the as-yet-untaken RMD balance and include that in the estate of the decedent to distribute as per the will, or whatever the probate court says. The IRAs belonging to the decedent then pass to the designated beneficiaries as Inherited IRAs. Of course, if the decedent had opted not to designate any beneficiaries for his IRA(s), or if all the designated beneficiaries had predeceased the decedent, then the default beneficiary is the estate of the decedent. The value of the (Traditional) IRA is then income subject to income tax on the final income tax return of the decedent. Regardless, the value of the decedent's IRAs is to be included in the estate for estate tax purposes and given the fact that the current estate tax exemption is so large that very few estates actually pay any estate tax, I won't waste time discussing this matter: if the decedent was rich enough for this to be an issue, the executor will have enough lawyers eager to help him at his beck-and-call.

So, since the OP talks of liquidating the decedent's IRA, it might be the case that he is the designated beneficiary of the decedent's IRA and so once he has supplied the IRA custodian with the death certificate of the decedent, the IRA custodian will transfer all the IRA assets into a new account designated an Inherited IRA. This Inherited IRA can be transferred from Institution A to Institution B if the OP so desires, but it will retain its Inherited IRA designation and the same rules will apply. IRS Publication 590b says

If you inherit a traditional IRA from anyone other than your deceased spouse, you can't treat the inherited IRA as your own. This means that you can't make any contributions to the IRA. It also means you can't roll over any amounts into or out of the inherited IRA. However, you can make a trustee-to-trustee transfer as long as the IRA into which amounts are being moved is set up and maintained in the name of the deceased IRA owner for the benefit of you as beneficiary.

Like the original owner, you generally won't owe tax on the assets in the IRA until you receive distributions from it. You must begin receiving distributions from the IRA under the rules for distributions that apply to beneficiaries.

I don't know what the OP means when he says

I have opened an Inherited IRA at another institution.

I don't think it is possible to "open" an Inherited IRA account, but maybe what is meant that that the OP has informed Institution B that he intends to have Institution A transfer the Inherited IRA to Institution B. The OP should keep in mind that this must be a trustee-to-trustee transfer; one cannot take a distribution from an Inherited IRA in Institution A and roll it over to an Inherited IRA account in Institution B within 60 days as is possible with nonInherited IRAs.

If the decedent did not designate beneficiaries for his IRA or all the beneficiaries predeceased the decedent and so the IRA becomes part of the estate, then the estate must withdraw all the money using the 5-year rule. None of this money can be used to establish an Inherited IRA for another individual

The OP asks

Are there tax implications for me?

You will owe income tax on the distributions from a Traditional Inherited IRA.

Fees?

Depends on the Institution.

Do I get to keep this as my IRA and manage it or do I need to withdraw it all at once or over time?

An Inherited IRA is not your IRA and you can't treat is as yours unless you happen to be the spouse of the decedent. You don't need to withdraw it all at once, but the 10-year rule (withdraw the entire balance of the IRA by December 31 of the year containing the 10th anniversary of the owner’s death) will be applicable if the decedent had not reached the age when RMDs must start to be taken.

Anything I didn't take into account since I am new to this?

About a gazillion things, as described in IRS Publication 590b linked to above.

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  • Thanks for the detailed response. Slight correction: you can open an Inherited IRA at Vanguard (I've done so myself) - it was an account option. I'm not sure of the difference between just transferring an account in, and opening an BDA IRA, but that's what I was told to do on the phone.
    – Alex K
    Aug 2, 2021 at 21:07
  • Thanks for the detailed response. Slight correction: you can open an Inherited IRA at Vanguard (I've done so myself) - it was an account option. I'm not sure of the difference between just transferring an account in, and opening an BDA IRA, but that's what I was told to do on the phone.
    – Alex K
    Aug 2, 2021 at 21:07
  • Thanks for the detailed response. Slight correction: you can open an Inherited IRA at Vanguard (I've done so myself) - it was an account option. I'm not sure of the difference between just transferring an account in, and opening an BDA IRA, but that's what I was told to do on the phone.
    – Alex K
    Aug 2, 2021 at 21:07

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