You know the game “beer pong?” Arrange 6 or 10 cups in a triangle, fill each one with a couple of ounces whatever beverage you are enjoying, and your opponent tries to toss a ping-pong ball into one of the cups. If a throw is successful, the contents of that cup are consumed, and it is removed from the table. Rinse the ball off, and it’s your turn to try and toss it into one of the other person’s cups. The first person to eliminate each of his opponent’s cups wins.
What’s interesting is the number of permutations and in-house rules that can apply. Here at Casa Ives, we require a “re-rack” into a diamond shape when there are four cups left. Also, your throwing elbow cannot go beyond the end of the table. Some people forbid bouncing the ping-pong ball. Others say a bounced ball into a cup means the thrower gets to choose a second cup to be consumed and removed from the table. On and on the different rules go.
Such is the case with IRA custodians. There are different in-house rules for different scenarios. For example, titling of an inherited IRA can be handled in multiple ways. The deceased IRA owner’s name must remain on the inherited IRA account and the account title must indicate that it is an inherited IRA by using the words “beneficiary” or “inherited IRA.” However, there is no set format or hard-and-fast rules dictating EXACTLY how an inherited IRA is to be titled. As long as the deceased IRA owner’s name remains on the account and it’s clear that it is an inherited IRA, then all is well. A properly titled inherited IRA could look something like: “John Smith IRA (deceased 11/27/22) F/B/O John Smith, Jr., Beneficiary”
Another example of custodians handling things differently is when it comes to their policies allowing spousal rollovers even though a trust is named as IRA beneficiary. If a trust is named, then we would expect to see an inherited IRA for the trust established. After all, the rules are clear. If a trust is named as the beneficiary, the inherited IRA should be set up for the trust. However, if the surviving spouse is the sole beneficiary of the trust, and if that person has total control of the trust assets, in many private letter rulings (PLRs), we have seen the IRS allow the surviving spouse to do a spousal rollover of the assets into her own IRA. But this is not automatically allowed. It is the custodian’s decision to allow the spousal rollover or not. If the custodian refuses, it may be necessary to get your own PLR from the IRS.
Similarly, an “estate bypass” is something a custodian may or may not allow, based on their in-house rules. When an estate becomes an IRA beneficiary, we would typically see an inherited IRA set up for the estate. But depending on the applicable payout structure, this could force the estate to remain open for many years. To be able to close the estate, some custodians allow inherited IRAs to be established for the estate beneficiaries. The downside is, these accounts will still be bound by the payout rules applicable to the estate – like possibly the 5-year rule. Again, this is at the custodian’s discretion, so if they refuse, a PLR may be in order.
Not all IRA rules are fixed across the board. There is some flexibility among custodians. Hopefully we all find ourselves dealing with helpful and agreeable partners. But if you do run into a custodial brick wall, maybe a game of beer pong is in order. Just watch that elbow.
Specializing in private wealth management, we provide education, guidance, and strategies to help you achieve a tax-efficient retirement income.
Investment advisory services offered through Donato Wealth Management, PLLC, dba Empower Wealth Management and Empower Wealth & Tax (“Empower Wealth Management” or “EWM”),
an SEC registered investment adviser that only conducts business in jurisdictions where it is properly registered, or is excluded or exempted from registration requirements. Registration as an investment adviser is not an endorsement of the firm by securities regulators and does not mean the adviser has achieved a specific level of skill or ability. The firm is not engaged in the practice of law or accounting.
The information presented is believed to be current. It should not be viewed as personalized investment advice. All expressions of opinion reflect the judgment of the authors on the date of publication and may change in response to market conditions. You should consult with a professional adviser before implementing any strategies discussed. Content should not be viewed as an offer to buy or sell any of the securities mentioned, or as legal or tax advice. You should always consult an attorney or tax professional regarding your specific legal or tax situation. Personal investment advice can only be rendered after the engagement of EWM, execution of required documentation, and receipt of required disclosures. All investment and insurance strategies have the potential for profit or loss. Asset allocation and diversification will not necessarily improve an investor’s returns and cannot eliminate the risk of investment losses. Past performance is no guarantee of future results. For more information, please go to https://adviserinfo.sec.gov and search by our firm name or by our CRD #305031.
Insurance products and tax services are offered through Senior Tax and Insurance Advisors, PLLC, dba Empower Wealth Group (“Empower Wealth Group” or “EWG”). Any comments regarding safe and secure investments and guaranteed income streams refer only to fixed insurance products. They do not in any way refer to investment advisory products offered through EWM. Rates and guarantees provided by insurance products and annuities are subject to the financial strength of the issuing insurance company; not guaranteed by any bank or the FDIC. EWG is not affiliated with or endorsed by the U.S. Government, Social Security Administration, nor the federal Medicare program. You may be contacted by a licensed insurance agent. Calling the number above will direct you to a licensed insurance agent. EWG may not offer every plan available in your area. Any information provided is limited to plans available in your area. Please contact Medicare.gov or 1-800-MEDICARE.
EWM and EWG are both affiliated companies of Empower Wealth, LLC (“Empower”). Investment adviser representatives of EWM may have a financial incentive to recommend tax and insurance products and/or services offered through EWG which presents a conflict of interest. This conflict is addressed by EWM’s adoption of its Code of Ethics, which requires that all EWM’s Associated Persons place the interest of clients ahead of their own. Clients of EWM are also free to choose their own tax and/or insurance professionals and are under no obligation to utilize the services offered through any related entities or persons associated with Empower.
Strategic Partners listed on this page are not employees of EWM and are not affiliated through common ownership.
We do not offer every plan available in your area. Any information we provide is limited to those plans we do offer in your area. Please contact Medicare.gov or 1-800-MEDICARE to get information on all of your options.
© Empower Wealth Management All Rights Reserved.
