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THE SECURE ACT AND IRA BENEFICIARIES: TODAY’S SLOTT REPORT MAILBAG

By Sarah Brenner, JD
IRA Analyst

Question:

I attended the two-day event in Washington DC.

Is there any news on the attempts in Congress to change the stretch-out?

Jim

Answer:

Hi Jim,

It sounds like you are asking about the status of the Setting Every Community Up For Retirement Enhancement Act of 2019 (SECURE Act). This proposed legislation would do away with the stretch IRA for most beneficiaries and replace it with a ten-year payout period.

The SECURE Act overwhelmingly passed the House this spring. It is currently being held up in the Senate. There were some reports that it would be passed by the Senate last month, but that turned out not to be the case.

We are watching this bill carefully to see if Senators can all come to agreement on it or if it will be brought to the Senate floor. Currently, the holding pattern continues, but there are some who believe action could be taken later this year. Stay tuned.

Question:

Hi,

I’m an advisor with a newsletter subscription and I had a question.  I have a client who was a beneficiary on her father’s IRA with another custodian and she received a portion of his IRA (it’s possible it was in a company plan before it was moved into an IRA) and we submitted paperwork to transfer the account to a beneficiary here at Ameriprise.  The custodian produced a 1099-R. She received a letter from the IRS in July and sent them information to show the transfer, but the IRS sent her another letter last week saying she owes tax on the distribution.  Just curious if you had any insight on this type of situation?

Thank you.

Mike

Answer:

Hi Mike,

When IRA funds are moved from one custodian to another, there can often be confusion. Your client was a nonspouse beneficiary because she inherited an IRA from her father. As a nonspouse beneficiary, she cannot have the funds distributed to her from the inherited IRA and then do a 60-day rollover. If she took a distribution payable to her, that is the end of the road. It is taxable and not available for rollover.

While nonspouse beneficiaries cannot roll over funds from an inherited IRA, they are permitted to do direct trustee-to-trustee transfers to another inherited IRA. If this was what happened here, the custodian should not have issued Form 1099-R. The IRS is seeing this form and seeing a taxable distribution. If this was really a direct transfer to another inherited IRA, the custodian issued the Form 1099-R in error and should correct the reporting.

https://www.irahelp.com/slottreport/secure-act-and-ira-beneficiaries-todays-slott-report-mailbag

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