Risks of a Mistitled Inherited IRA?

[JoeBialy]

There is plenty of great advice on here and the web about how to properly title an inherited IRA. My Q is: What are the risks/consequences if that titling is somewhat incorrect?

Longer version: My mother passed away a few years ago and left me a Roth IRA, which I kept at her old brokerage. I have been diligent about RMDs and other legal formalities, but would now like to do a trustee-to-trustee transfer of the Inherited IRA to my current brokerage.

Unfortunately, my current brokerage does not seem to be titling their inherited IRAs correctly. They are titling them as "[Client Name] of [Deceased Name], Brokerage LLC." For example: 'John Smith of Sarah Smith, Brokerage LLC.'

This is sort of close, but still seems plainly out of compliance with the experts recommend, which derives from IRS Notice 2007-7 and its requirement of a clear specification of beneficiary and decedent:

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A-13. The IRA must be established in a manner that identifies it as an IRA with respect to a deceased individual and also identifies the deceased individual and the beneficiary, for example, “Tom Smith as beneficiary of John Smith.”

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Not being a tax lawyer or CPA, I don't know what risks are created if I just accept the new brokerage titling scheme and complete the transfer. Is their titling scheme "close enough," or could it create real headaches? Is the IRS going to blow up my IRA when they see the 1099-R and claim I've lost the stretch rights?

The brokerage basically told me they're aware of the issue, but won't be able to fix it anytime soon.

And unfortunately, I really need to consolidate things at that particular brokerage, so finding a different brokerage is not particularly viable. Thanks for any thoughts!

[jfoxcpacfp]

I would not be comfortable with that title. Just keep it at a different brokerage until they get their problems worked out. That is kind of unacceptable that they are so rigid when they know they are wrong.

[Peds]

what brokerage are you trying to move it to?

[spiritrider]

A substantial percentage of brokerages, banks and fund companies do not follow IRS Inherited IRA naming guidelines to the letter. In fact in the case of successor beneficiaries, the vast majority of custodians do not follow IRS Form 1099-R and 5498-R Instructions. They make the case that the IRS instructions are counter-productive.

As long as it is clear by context that this is an Inherited IRA and not an owned IRA, I believe this custodians's naming convention meets that burden. I have never heard of the IRS taking adverse action against an individual Inherited IRA account for their custodian not meeting the letter of the guidelines.

Obviously this custodian has many, many Inherited IRAs and the IRS has not shut them down. Believe it or not in this day in age, it is sometimes a legacy length of field issue in many custodian's IT systems.

[JoeBialy]

I appreciate all the prompt replies!

I just checked my account again and they've improved the title a little bit.

They are now titling it as "[Client Name] of the Roth IRA of [Deceased Name], Brokerage LLC." For example: 'John Smith of the Roth IRA of Sarah Smith, Brokerage LLC.'

Before (as I said above) they were missing the "of the Roth IRA." So at least now they are IDing it as an IRA. And more 'of's!

The brokerage is Interactive Brokers.

Spiritride: Yes, that all certainly makes sense. I can't imagine the IRS is bouncing all of their other inherited IRA accounts titled similarly, or there would be an uproar.

And you're absolutely right it seems to be an IT issue. I got to serious, "Level 2" help at IB, and the support guy basically said, "I'm the one around here who can fix problems and we're going to fix this!!!" And then a week later: "Uh ueah there's some back-office IT issues here and it's not going to happen anytime soon sorry."

 

[jfoxcpacfp]

JoeBialy wrote:

They are now titling it as “[Client Name] of the Roth IRA of [Deceased Name], Brokerage LLC.” For example: ‘John Smith of the Roth IRA of Sarah Smith, Brokerage LLC.’

Click to expand...

No problem with this. And IAB is certainly a respectable firm.

[Tim]

We learned the hard way. In particular, the US naming convention of first, middle, surname doesn't lien up with others (first, family name, mothers family name). Birth Certificate, Drivers License, Marriage License, Death Certificate, Will and all accounts need to match.

Even with a clear trail, sometimes originals need to match. PITA!