Inherited IRA question

[Charper1841]

I have done some research and are still not getting a clear answer.  I'd love some help with this question...  I have a client who passed in January, 2024 who had inherited an IRA that was never fully transferred over to her before she passed.  Per the attorney, the IRA will still go into the decedent's estate.  The attorney indicates that they want to transfer the IRA to the estate beneficiaries this year. My questions are the following:

1. Will the estate be subject to a 5 or 10 year period?

2. Does the estate need to take a distribution in 2024 if it is transferred to the beneficiaries?

3. Can the estate transfer the IRA to the beneficiaries or does it need to hold the IRA for the either 5 or 10 year period and distribute out via K-1?

There is so much conflicting information out there that I cannot get a good answer.  I appreciate any help!

[IRonMaN]

I think all your problems are solved if the attorney does as he or she mentioned and transfers the IRA to the beneficiaries.  That way there will be nothing to be reported through the estate. 

[BobKamman]

If John named Sally as his IRA beneficiary, she had years to finish taking distribution.  (Under the new rules just announced, I think it's usually ten.)  So if she had done what she should have, she's not in trouble.  But if she had then named Richard as beneficiary, he would have to take the entire amount in the same year of her death (or maybe he gets another year's grace period).  The estate is in the same position as the named beneficiary -- no further delay.  Otherwise everyone would take advantage of the loophole.  

[qbteachmt]

"was never fully transferred over to her before she passed"

Did the first person die and then the second died, like this rule:

"Beneficiary designations, for distribution purposes, do not become fixed until September 30 of the year following the year of an IRA owner’s death. This is referred to as the beneficiary designation date"

Otherwise, there is no such thing as Partially transferred. Do you mean it was partially distributed? Did the original owner die under the old inheritance rules? When you are the original beneficiary of an IRA and the original owner dies, it's yours. What you do with it Next, is a different task. You can take it all as a lump sum distribution, you can roll it into your own account titled as Inherited, for RMD or the 10-year rule, the date of death matters, it matters if the person inherited from a spouse (they have different options), the age of the person inheriting matters, etc.

So, let's move on the assumption that the account is inherited, but not dealt with. Then, the account is dealt with. Where it is and what it is when the original beneficiary dies, that's what it is. There's no partial about it. And now you deal with the next "successor beneficiary" inheritance level (spouse or not, RMD or not, same as above). If she had not established beneficiaries, then it passes to the estate. An eligible designated beneficiary (EDB) is always an individual. A DB cannot be a nonperson entity such as a trust, an estate, or a charity.

The estate doesn't have a holding period requirement; it's the opposite. Nondesignated (not individuals) beneficiaries (trusts, estates, and charitable organizations) must empty the account with five years. But it might take a while to settle, such as, the type of investments.

"The attorney indicates that they want to transfer the IRA to the estate beneficiaries this year"

Which can be done as allocated amounts into the individual Inherited IRA accounts. The deadline to establish separate accounts is no later than the end of the year following the year of the IRA owner’s death. Or, it can be fully withdrawn and distributed. And yes, there might be RMD requirements from the original death (did they take one for this year) and for the recent death's requirement as follow up and under her own requirement.