Quick Take: John Corn on Traditional and Roth IRA Options for Non-Spouse and Multiple Beneficiaries

Q: I just inherited an IRA from a relative. What steps should I take as one of the named beneficiaries?

A: First and foremost, the beneficiaries must make sure they take the IRA owner’s final required minimum distribution before the end of the year, if the account owner was older than 70½ when he or she died. The next step is to separate and transfer the assets into separate inherited IRAs by December 31 of the year following the IRA owner’s death. An inherited IRA should be carefully titled, so it is in the name of the decedent FBO beneficiary, dated as of DOD (date of death). An example would be: “John Smith, Deceased (12/04/2013) IRA FBO James Smith, Beneficiary.” After an inherited IRA is established, the beneficiaries must begin taking distributions by December 31 of the year following the death of decedent. Required minimum distributions are calculated annually based on a complex formula using the IRS single-life table. Beneficiaries can seek assistance in determining the distributions by consulting an investment or tax professional. Beneficiary owners can name their own successor beneficiaries who, when they inherit the IRA, must continue using the remaining life expectancy of the original beneficiaries. If there are multiple beneficiaries and they fail to separate the IRA into separate shares, then their share of the required minimum distributions must be distributed to

each of them based on the life expectancy of the oldest beneficiary based on the single-life table. The rules with regard to Roth IRAs are identical to those of traditional IRAs with one difference. Required minimum distributions still need to be taken from inherited Roth IRAs, but those required minimum distributions are tax free to all future beneficiaries.

About John Corn, CPA/PFS

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The opinions expressed by featured authors are their own and may not accurately reflect those of the BAM ALLIANCE. This article is for general information only and is not intended to serve as specific financial, accounting or tax advice.

© 2014, The BAM ALLIANCE

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