After closing the safe deposit box, closing the traditional IRA was the next task in the administrative plan. Earlier in the administration, while in the interim, I called the custodian of the traditional IRA to inform them of my Uncle’s death. The representative I talked to realized that accomplishing anything at this time wasn’t possible because I haven’t received approval to act as executor. So, at the end of the call, the representative said, “When you receive your approval letter call back and we’ll discuss the IRA.” After the call, I put aside the matter of closing the traditional IRA.

Setting the Meeting

After a few weeks passed and since been approved as executor, the bank sent me a letter in early December, 2012. In short, the letter served as a reminder that a meeting was necessary to discuss options regarding the IRA and to set a meeting as soon as possible. After I read the letter I asked myself, “What options? Are all the options to close a decedent’s IRA available even with no beneficiaries?” The only option I thought available at the time was to take a lump-sum distribution for an IRA with no beneficiaries. So, soon after I closed the safe deposit box, I called the representative to set the meeting.

Choosing an Option

On the day of the meeting, while driving to the bank, I began pondering all the possible options that I knew of in regard to closing the traditional IRA:

• The 5-year rule. My knowledge of the 5-year rule was limited at the time. However, I didn’t want to manage an inherited IRA for five years and run up probate costs for each year.

• The stretch rule. I knew even less about the stretch rule, but knew I would have to manage the inherited IRA for a length of time based on my Uncle’s life expectancy factor. Since this option may require keeping the estate open longer than the 5-year rule, it wasn’t a viable option.

• The lump-sum distribution. I knew a tax hit would result, but it’s the best option based on what I knew then.

Once at the bank, with my decision made, the representative took me to her office immediately.

As we took our seats, she said to me, “Have you decided how to handle the taxes for the IRA?”

Having decided, the question confused me. The representative agreed to present other options when I set the appointment. After seeing my stunned face, she explained, “Typically, when the estate is the beneficiary, most people opt for  the lump-sum payout.”

I replied, “Then let’s do that. The other options require keeping the estate open longer than required and I have no interest in doing that. So, let’s close out the IRA.”

Closing the Traditional IRA

The representative agreed and took me back to the waiting area so she could get the paperwork ready. After completing the paperwork, the representative guided me into the office to begin the following process to close the traditional IRA:

• Open an inherited IRA.
• Transfer the assets from the inherited traditional IRA to the inherited IRA.
• Close the inherited traditional IRA.
• Disburse the transferred funds in the form of a bank check to the estate’s executor (me).
• Close the inherited IRA.

To my surprise, the process took a while. The process took about two hours to prepare the paperwork, sign the paperwork, transfer the funds, and deliver the check. Once the check arrived, the process was over and the check went directly into the estate account.

The End Result

When contemplating the options while driving to the bank, I didn’t know then that the IRS allowed the transfer of an inherited IRA for the benefit of the estate to an inherited IRA for the benefit of the estate beneficiary when the estate closed. Also, the bank didn’t offer any information on the inherited IRA. However, since there were twenty beneficiaries in the estate, the result would have been the same: taking the lump-sum distribution. As mentioned in the article Inherited Traditional IRA | Distribution Rules for Estate as Beneficiary, it would have been hard to find a custodian to create twenty inherited IRA’s for the benefit of estate beneficiaries and execute twenty transfers for each beneficiary. So, due to poor estate planning, the outcome was inevitable.

Recommended Reading

For more insight on the options of closing a traditional IRA without designated beneficiaries, read the article Inherited Traditional IRA | Distribution Rules for Estate as Beneficiary.

Does this portrayal of my experience in closing the estate’s traditional IRA help you? Do you know of a better way to handle the closing of the traditional IRA? Share your comments or questions in the comment area below.