IRA Payout to Contingent Beneficiary

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Question:

We have a primary owner (wife) on an IRA who has named her husband as primary beneficiary on her IRA. Her son is named contingent beneficiary. The husband died (who is primary beneficiary) and then a few months later the primary owner (wife) of the IRA died. The only person alive now is the contingent beneficiary. What options does he have on the payout of this IRA? How should the distribution be done and made payable to?

Answer:

If you inherit a traditional IRA from anyone other than your deceased spouse, you cannot treat the inherited IRA as your own. This means that you cannot make any contributions to the IRA. It also means you cannot roll over any amounts into or out of the inherited IRA. However, you can make a trustee-to-trustee transfer as long as the IRA into which amounts are being moved is set up and maintained in the name of the deceased IRA owner for the benefit of you as beneficiary.

Like the original owner, you generally will not owe tax on the assets in the IRA until you receive distributions from it. You must begin receiving distributions from the IRA under the rules for distributions that apply to beneficiaries.

For a complete description of the distribution rules for beneficiaries, you can refer to the IRS Publication 590, found here:

http://www.irs.gov/publications/p590/ch01.html#d0e5945

First published on BankersOnline.com 12/10/07