IRA Beneficiary Rules
When an IRA owner passes away, his IRA funds go to a designated beneficiary. The exact amount of money distributed to a beneficiary depends on whether the beneficiary is a spouse or a non-spouse. If you are named a beneficiary of an IRA, research the inheritance and distribution rules for your profile.
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The Designated Beneficiary
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The IRA owner must designate a beneficiary before age 70 1/2 on a beneficiary form. The final designated beneficiary before his death inherits the IRA.
Choosing a Beneficiary
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An IRA holder can specify more than one beneficiary, but he has to state what percentage of the IRA each beneficiary will receive. The IRA holder can change his mind about his beneficiaries at any time. But if he doesn't name a beneficiary, the IRA benefits automatically go to his estate.
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Rules for Spousal Beneficiaries
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If a spouse inherits the IRA, she can either inherit the IRA or roll it over into her own IRA. Per IRS rules, a spouse can treat the IRA as his own only if he is the sole designate of the IRA, contributes regularly to the IRA and has the right to withdraw unlimited amounts from the IRA.
Rules for Non-Spousal Beneficiaries
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Non-spousal beneficiaries cannot roll over the inherited IRA into an existing IRA. Moreover, they must take minimum distributions, or withdrawals, from the IRA per year.
Distribution Rules for Non-Spousal Beneficaries
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IRS rules dictate that non-spousal beneficiaries may cash in on the IRA five years after the IRA owner's death, or have the IRA distributed to them in smaller amounts for the rest of their lives. Non-spousal beneficiaries, unlike spousal beneficiaries, also pay taxes on their IRA as part of their income tax.
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References
Resources
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