The rules concerning inherited individual retirement accounts are complex. How the IRA is passed on to beneficiaries depends on how the deceased IRA owner had designated the beneficiaries. While beneficiaries can waive their rights to an IRA, they do not have the right to decide who gets the waived portions.
An IRA owner can name primary and contingent beneficiaries, or she can name no beneficiaries at all. The primary beneficiaries share the inherited IRA. Contingent beneficiaries inherit an IRA only if a primary beneficiary dies before the IRA is distributed. This is important, because when you disclaim part or all of an inherited IRA, the law treats the subsequent distribution in the same way it would had you died. The question of who gets the IRA then centers on how the deceased IRA owner filled out the beneficiary form.
By Head or By Branch
The default method of distributing inheritances is “per capita” -- by head. Under this method, if you disclaim an inherited IRA, the amount you disclaim goes to the other primary beneficiaries. If you are the sole primary beneficiary, then the IRA goes to the contingent beneficiaries, or, lacking any, to the deceased’s estate. The beneficiary form used by the IRA custodian may allow the owner to choose the “per stirpes” -- by branch -- method. In this method, if you disclaim the IRA, your next of kin inherit your portion.
Required Minimum Distributions
The Internal Revenue Service requires that the owner of a traditional IRA take minimum distributions after age 70 1/2, based upon the life expectancy of the owner or the joint expectancies of the owner and the owner’s spouse. When the owner dies, the beneficiary may receive a required minimum distribution before disclaiming the IRA. The IRS has ruled that the beneficiary can disclaim the remaining portion of the IRA but must pay any taxes due on the required minimum distribution received.
To disclaim an IRA, you must put your intention in writing and dispatch it to the IRA custodian or trustee within nine months of the owner’s death. If the deceased named someone other than a spouse as the IRA’s only beneficiary and that person disclaims the IRA, the IRA will go to the spouse unless the deceased left instructions to the contrary in a will. If there is no spouse, a state court might have to apply probate law to decide how to divvy up the deceased’s estate, including the IRA.
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