Inherited IRA for our Daughter

As a estate planning strategy, we asked my mom to make her grandchildren the beneficiaries of her IRAs.  Besides giving some assets to her grandchildren, a major benefit is the required withdrawal period is extended to the lifetime of her grandchildren.  This allows the savings a longer time frame tax free earnings.  To take advantage of the extended time for withdrawals, the beneficiary must strictly follow IRS rules.

I just completed the paperwork for our daughter and here's what I've learned:

First, the inherited IRA cannot be commingled with existing IRAs or IRAs inherited for others.  Doing so will revoke the option of taking required withdrawals over the lifetime of the beneficiary.   In addition, a taxable distribution would have been made when the funds were commingled.

Second, a separate inherited IRA account should be opened with both the beneficiary's and decedent's no.  No additional contributions can be made to this IRA account.

Third, the creation of the IRA and transfer of funds must be completed by December 31 of the year following the decedent's death.

Fourth, a custodian is needed for beneficiaries under 18.

The only downside I've discovered is that taxable IRA RMD withdrawals will create a tax return filing requirment for our daughter.  However, I think she will be below the $950 standard deduction for a dependent taxpayer with only unearned income.  So, her tax liability should be zero.

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This is not financial or IRA advice. Please consult a professional advisor.

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