My father passed away in March of 2014, and my mother (82 years old) was the beneficiary of his one-time pension pay out.
My mother put his pension into a Chase Bank IRA, for convenience and in order to avoid the 20% government tax.
The total Fair Market Value as of 12-31-2014 is $31,138.88.
Now, she has a RMD due in 2015.
What are the advantages of a Roth IRA? Do Roth IRA’s have RMD’s?
Would it better for my mother to move the entire current Chase IRA into a non-taxable account, such as a savings account?
My mother does not need an interest bearing account (if that means paying taxes) as this money is considered an emergency fund.
My mother has plenty of stock investments to live on if needed.
She lives well on my fathers VA pension and her Social Security.
Do you have any suggestions about what my mother should do with her Chase IRA?
Thank you so much for all your help.
Terry Says: Wait — it seems like you have a LOT of things confused in this question. First, I think you’re saying she “rolled” the pension payout into an IRA in her name to avoid taxes. Good move. Make sure she has named you (or you and your siblings) as beneficiaries for this IRA — very important in case something happens to her.
I’m also assuming that she had no other IRAs, or she would have been required to take MRDs for the past decade.
There’s not a lot of money involved here. So she should simply ask Chase to calculate the MRD, the amount she must withdraw every year, depending on the balance in the account at the end of the previous year. That withdrawal will be taxable income to her. There is no point in converting it to a Roth at this stage of life, because she would owe taxes on the entire amount. No point in paying the government, because when you inherit the IRA you will be able to stretch out the tax-deferred growth of the remaining balance.
If she doesn’t need the MRD to live on, she can easily “gift” the withdrawal money now to her children. But you’re probably better off putting it in a savings account in her name– because the cost of care in old age is rising, and she might need the extra cash. And don’t worry about paying taxes on income from any savings account; they aren’t paying much interest!
The one thing you SHOULD do now — though you didn’t ask — is make sure your mother has her own will –and a healthcare power of attorney, and a living will – -the healthcare directive. A copy of both should be given to her physician, as well as to you, assuming you are the designee of those powers of attorney.