Facts About a Beneficiary IRA
IRA's are similar to most life insurance policies because they allow you to name a beneficiary who will obtain the funds in your account upon your death.
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Choosing a Beneficiary
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The IRA owners must choose a beneficiary who will receive the remaining funds in the account upon their death. If an owner fails to choose a beneficiary, or if the chosen beneficiary dies without the IRA owner naming another beneficiary, the IRA will determine the recipient of the money.
Designated Beneficiary
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IRA account holders must designate a beneficiary before the age of 70 1/2. More than one beneficiary may be selected. In this case, the owner must decide what percentage each individual will receive.
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Taxes
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IRA distributions to beneficiaries are subject to federal income taxes.
Withdrawals
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Once the IRA owner dies, beneficiaries can withdraw the funds over their remaining life expectancy. However, the remaining life expectancy is calculated using the beneficiary's age following the year of the original IRA owner's death. This calculation is reduced by one year each subsequent year. The Internal Revenue Service has certain tables for figuring out these calculations.
Spousal Beneficiaries
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Spousal beneficiaries are the only beneficiaries that has rollover option. If the spouse is the sole beneficiary, he or she has the option of accepting the inherited IRA or rolling it over into another IRA account. Spousal beneficiaries are the only beneficiaries that have the rollover option. In essence, they can opt to treat the IRA as their own.
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References
Resources
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