People who inherit IRA’s might be unfamiliar with the rule surrounding inherited IRAs. For example, when a person inherits an IRA, the inherited beneficiary must begin to take distributions the year after the owner dies by December 31st. This is the case regardless of whether the person inherited a traditional IRA or a Roth. According to Forbes, “To calculate this distribution, you take the balance on Dec. 31 of the previous year and divide it by the inheritor’s life expectancy, as listed in the IRS’ ‘Single Life Expectancy’ table. (You can find the table in IRS Publication 590, ‘Individual Retirement Arrangements (IRAs),’ which downloads here as a PDF.) Unless the account is a Roth, there is income tax on this required payout.” If a beneficiary would like to, he or she can choose to take the minimum required distributions over the course of their own expected life spans.
Furthermore, a beneficiary can choose to disclaim an inherited IRA to favor another party. However, it is important to note that it is not a will or the intestacy laws that affect where a disclaimed IRA will go, it is the beneficiary designation form and the policy of the company that held the IRA that will control. Therefore, before a person chooses to disclaim an inherited IRA, that person might want to do to a bit a of research into this area. These policies sometimes state that the IRA will become part of the deceased estate subject to intestacy laws. If that is the case, there are a number of ways that the intestacy laws can divide the IRA, based upon the state in which the person resides.
See Deborah L. Jacobs, Inherited IRA Rules: What You Need To Know, Forbes, May 1, 2013.
