Hazards to Avoid when Inheriting an IRA – Part 3

In a recent issue of Kipplinger’s Retirement Report several problems are pointed out which can arise when someone who is not the spouse of the IRA owner inherits an IRA.

Another problem is not addressing the issues raised when there is a non-person beneficiary of an IRA.

If an IRA has several beneficiaries and one is a charity, the IRA must pay out the charity’s share by September 30 of the year following the owner’s death. If that share isn’t paid out and the IRA has not been split up among the beneficiaries, the remaining beneficiaries cannot take their withdrawals over their life expectancies. Instead, the remaining beneficiaries will be required to withdraw over the next five years everything that is in the IRA if the owner died before taking any distributions. If the owner died after distributions had begun, the beneficiaries must take their distributions based on the owner’s life expectancy, not their own life expectancies.

If a trust is a beneficiary, a copy of the trust should be sent to the IRA custodian by October 31 of the year following the owner’s death. If it is not, the trust is considered a non-designated beneficiary like the charity in the previous example and the same payout rules apply.

Consult your estate planning attorney for further information.

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