The Reasons A Person Would Consider Disclaiming An Inherited IRA

It may seem implausible that a person would want to turn down an inherited IRA, but for some individuals it might be a good financial strategy.  When a person disclaims an inheritance the property is automatically transferred to a designated co-beneficiary or secondary beneficiary.  Disclaiming an inheritance used to be a common strategy to reduce a younger generations estate-tax burden back when the Federal Government had a lower estate-tax threshold. 

Today, most estates are not large enough to be subject to Federal estate taxes, but the practice of disclaiming an inherited IRA can still be a good strategy in certain circumstances.  Disclaiming an IRA can reduce an estate’s income-tax burden.  For example, a person in a 35% tax bracket could disclaim an IRA so that their kid who is in a 15% bracket could inherit it.  When disclaiming it is important to make sure that the right person is going to inherit the property. 

See Rachel L. Sheedy, Surprising Reasons You Might Want To Give Up a Multi-Million-Dollar Inheritance, Kiplinger, August 6, 2015.