Inherited IRA

Archive for January, 2009

Usually the owner of the IRA names his or her beneficiary. But, there are cases where determining the IRA beneficiary of an Inherited IRA is necessary. This IRA beneficiary complication arises when a named Inherited IRA beneficiary disclaims his or her share of the Inherited IRA, is also deceased, or has taken total distribution of his or her share of the Inherited IRA.

For the purposes of calculating post-death Required Minimum Distribution (RMD), the designated Inherited IRA beneficiary may now be determined as late as September 30th following the year of the Roth IRA owner’s death.

Renaming beneficiary or Inherited IRA

The IRA beneficiary may be changed after the Roth IRA owner’s death only by one or more IRA beneficiaries either disclaiming their interests in the IRA, or taking total distributions of their shares of the IRA.

Example of how to determine beneficiary of Inherited IRA

A Roth IRA owner named his spouse as his sole primary IRA beneficiary and his three children as his contingent IRA beneficiaries. When the Roth IRA owner passed away on April 8th, 2001, his spouse decided to disclaim her right to the Roth IRA assets.

If the primary IRA beneficiary disclaims the inheritance, this makes the contingent IRA beneficiaries the new primary IRA beneficiaries. One of the sons will fully distribute his allocation on September 1st, 2002. By September 30th, 2002, the remaining two sons would be considered the designated IRA beneficiaries of their father’s Roth IRA.

If there are multiple IRA beneficiaries, the Roth IRA may be split into separate accounts by December 31st of the year after the year of the Roth IRA owner’s death. In such case, the distribution of each account will be calculated separately for each IRA beneficiary.

To continue with our example, if the two sons divide the Roth IRA into separate accounts by the December 31st deadlines, each son will be able to use his or her own Life Expectancy to calculate the RMD to be distributed from the Roth IRA.