Michigan Took My Mother's IRA as Unclaimed Property

[tn8269]

I'm a 58yo attorney and my mother will be 80 this year. I live several states away and she seems to be doing OK. HOWEVER, in 2018 her IRA custodian turned over one of her IRAs to the State of Michigan as "unclaimed property"!

This happened despite her never having moved and her having her required minimum distribution checks direct deposited to her bank!

Now I'm looking into this and the custodian says Michigan requires this outcome since she didn't write or call in response to the warning notice they sent her. Obviously, that's something I'm looking at. 

I'm posting here to alert others to this possibility in Michigan (and other states) and in hopes this is an issue that AARP takes up. The IRS position is that turning her IRA over to Michigan is a taxable distribution to her! OUCH!

It seems to me that federal law ought to bar this escheatment if there are direct deposits. This is a very harsh outcome for a senior. Apparently, another way she could have avoided this is by having checks sent to her to deposit rather than using direct deposit. Does that make any sense!?

[GailL1]

@tn8269 

You said:

HOWEVER, in 2018 her IRA custodian turned over one of her IRAs to the State of Michigan as "unclaimed property"!

The part that I have highlighted in red is very important -

IF she was getting RMDs - WAS SHE INCLUDING THIS PARTICULAR IRA INTO THE CALCULATIONS OF THE RMD?    MAYBE SHE WASN'T.

How should I take my RMDs if I have multiple accounts?

If you have more than one IRA, you must calculate the RMD for each IRA separately each year. However, you may aggregate your RMD amounts for all of your IRAs and withdraw the total from one IRA or a portion from each of your IRAs. You do not have to take a separate RMD from each IRA.

https://www.irs.gov/retirement-plans/rmd-comparison-chart-iras-vs-defined-contribution-plans

It was her responsibility (or her designate) to either pull RMDs from each IRA account or advise each of them how her RMD would be handled - the value of each of them has to be accounted for in the RMD, even though the actual distribution may come from only one of them.  Perhaps this one wasn't which may mean the value of it was not included in her computation for her RMD.  Thus no activity - a dead account.  Seems like they would have tried to contact the beneficiary too.  

BTW,  There is a tax penalty for NOT withdrawing enough in the RMD - think it is 50% of the required RMD under distribution.

I bet that is what happened -

It is gonna be a mess to get this right - the state - the irs - setting it back up with the custodian.  Make sure it is done right for tax consequences. 

Maybe you need to pay a bit more attention after you get it straightened out.  Do you have her POA - you might need it to get this fixed.  Make sure everything is in writing.

[tn8269]

Hi, 

Thanks for taking the time. No, RMDs were coming out of this account. As I wrote, it was that she had not responded to the custodian's written inquiry. There would have been no inquiry had she elected to have RMD checks mailed to her and deposited them rather than having direct deposit. That's what I find crazy and posted here to alert others to this possibility. That's all. It's a mess. And under current law, can't put the money back into the IRA and reverse the unintended distribution. That's a law that ought to change.

[GailL1]

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@tn8269 wrote:

Hi, 

Thanks for taking the time. No, RMDs were coming out of this account. As I wrote, it was that she had not responded to the custodian's written inquiry. There would have been no inquiry had she elected to have RMD checks mailed to her and deposited them rather than having direct deposit. That's what I find crazy and posted here to alert others to this possibility. That's all. It's a mess. And under current law, can't put the money back into the IRA and reverse the unintended distribution. That's a law that ought to change.

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Yes, there would have been communication if she was doing it the right way -

Every year since she turned at least 70.5 years old and her RMDs were required to begin - EVERY IRA custodian would have communicated to her via Form 5498, indicating the amount of the (minimum) RMD at that institution based on her age and the associated formula and asking for instructions as to how to proceed.  

Year after year - for what about 10 years or so ?

just like the institution where her RMDs are originating now, she had to set up the date and amount - the subject one would have just been zero since she was electing to take it all from another institution's IRA but it still had to be communicated. All the amounts in each IRA still have to be added together to make sure that the yearly RMD is adequate, if it was under distributed, there is a hefty tax consequence.

I am sorry that this has happened to your Mom - 

A local IRS tax advocate might be able to help her - ask for or look up one of them by that name - IRS tax advocate - the IRS maintains a list of them.

Yes, senior's may need help with their finances, all the various rules, all the paperwork required and their taxes but sometimes they just don't ask for help -