IRA Rules
Individual Retirement Account Rules

IRA Rules And Information

 

IRA Beneficiary Rules

 

There are a few basic IRA Beneficiary Rules and this is just a short summary, not a comprehensive overview.

 

First, the rules are different for a beneficiary who is a spouse of the deceased and those who are non-spouse beneficiaries.  

If you are a non-spouse beneficiary then you have two basic ways to handle an IRA when the owner passes away.  Both require you to take mandatory distributions within 1-5 years.


A Lump Sum Distribution
 which involves taking the entire sum with no early withdrawal penalties but you do have to complete this by the end of the 5th year following the death of the IRA owner.  The Five Year Rule mandates that all IRA proceeds must be distributed no later than that period of time.

Annual Distributions - In this case the beneficiary takes annual distributions based on their life expectancy (similar to an annuity) and pays ordinary income tax each year on the distribution amount.  You have until December 31st of the year following the IRA owners death to decide on this option.  If you have not elected for this option by that time, then a Lump Sum Distribution will be your only option and it will be subject to the 5 year rule. 

Spousal Beneficiary - If the beneficiary is the Spouse of the deceased IRA Owner then there is an additional option available.  They can simply assume the IRA as their own and keep the same tax deferred status of the original owner.  If the spouse currently has their own IRA they can roll the IRA of the deceased into that account and the money will be treated the same as their own funds.  They will need to start making mandatory withdrawals on the whole amount at age 70 1/2.