Inherited IRA Rollover Question

11 Replies

I have a question related to an inherited IRA account. My dad passed away in 2016 and I rolled his retirement accounts into an inherited IRA with vanguard. My question is pretty straightforward: are there any tax implications with rolling the inherited IRA with vanguard into another self-directed IRA account that is managed by another company/custodian? I know that any distributions from my IRA is a taxable event subject to income taxation, but I just want to make sure that transferring from an inherited IRA to a self-directed IRA does not generate unexpected tax implications (because I'm simply transferring between slightly different IRA accounts and custodians and not taking any distributions).

Any help is much appreciated!

@Hank Hebel

You may move an inherited IRA from one institution to another without tax consequences. The only restriction is that you must execute a direct trustee-to-trustee transfer. Your receiving IRA custodian can assist with this process.

A "self-directed" IRA is exactly like any other IRA when it comes to account administration, timelines, beneficiaries, reporting, etc. The difference is simply on the investing side, and the capacity to invest beyond just the public exchanges.

Awesome, that was my assumption, but I just wanted to verify. I have a slight wrinkle that I forgot to mention. Because my dad's retirement accounts where initially in multiple account types, the vast majority of the money was transferred to the Inherited Vanguard IRA that I mentioned above. However, a small portion has been transferred to me, but is still being held in my name by the custodian that was administering my dad's original retirement funds. I'm assuming that I can also transfer this $ to the new IRA I want to set up, rather than first transferring those funds to the inherited IRA through vanguard and then transferring to the new IRA from there?

Thanks again for the advice, @BrianEastman !

@Hank Hebel

So long as the funds you mention are still considered to be a non-spousal inherited IRA, they would be compatible with the other monies. You could go from there to either of the other accounts, but yes, direct to the new self-directed would make sense. Have someone at the new custodian review the current account statement to ensure it is still compatible as an inherited IRA. Should be, but your language is a bit less than precise* so good to check on the details with a professional (*not at all unusual or surprising as most peopled don't do this every day).

A commenter from another message board said what I described above is only allowed if I inherited the IRA from a spouse. I'm assuming that's incorrect? Sorry for the multiple questions.

@Hank Hebel ,

If you inherited an IRA from your spouse - it can be converted into your own IRA, with your name on it.

An IRA inherited from anyone other than your spouse would have to be "Inherited IRA", it will have the deceased name as the account holder and you as the beneficiary will control it.

You can not mix/combine personal IRA with inherited IRA.

Sorry, but now I'm confused. To get a bit more specific, my dad was a public employee. He had 401a and 403b retirement accounts. After his death, most of that $ was transferred to an inherited IRA brokerage account in my name (with Vanguard). I want to transfer that money in the Vanguard account as a trustee to trustee transfer to another custodian/company. That is allowed, correct?

Apologies for the multiple questions.

@Hank Hebel ,

Yes, you can transfer retirement accounts you inherited from your father into self-directed inherited IRA. You can't however combine this inherited IRA with your personal IRA.

@Hank Hebel

It sounds like you are just fine. So long as the designation on that account "in your name" is a non-spousal inherited account, then it is compatible with the old employer plans. Funds directly moved from those 4010/403 plans to the inherited IRA would retain tax-sheltered status.

There really is no way to move that money into any other non-inherited account - so the likelihood anything got mis-routed would be very low.  The exception would be if instead of a transfer you took a personal distribution to you - which would be taxable.  It does not sound like that is the case.

A discussion with your CPA or financial advisor who speaks this particular language would not be a bad idea.

@Hank Hebel

In the case of an IRA that was inherited by a non-spouse beneficiary, as long as the inherited IRA is processed as a direct-rollover (i.e., a direct trustee-to-trustee transaction) it will not trigger the payment of taxes.