How to Disclaim an IRA
Disclaiming an IRA means that you, as the primary beneficiary, are waiving rights of possession of the IRA assets. You might want to do this for a couple of reasons. The first is to transfer the assets to the next line of beneficiaries to avoid estate taxes. Disclaiming an IRA can also reduce the annual income should required minimum distributions already be in effect.
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Instructions
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Obtain the beneficiary information from the IRA account. You need to obtain not only the primary beneficiary information but also the contingent beneficiary information.
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Write a letter waiving the rights to the IRA assets and relinquishing the assets to the contingent beneficiaries. This needs to be done by the primary beneficiary or by an attorney acting on behalf of the primary beneficiary.
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Send the letter via registered mail to the IRA custodian. You can use registered mail through the U.S. Postal Service, Federal Express or UPS. The letter needs to be received within nine months of the IRA owner's death or the transfer of assets.
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Do not use any part of the IRA assets until the waiver is complete and transferred to the contingent beneficiaries. Any use or distribution by the primary beneficiary before the waiver will void the waiver. (Note that if a required distribution was made in the process, this is acceptable because it is needed to fulfill the IRS distribution requirements. This should be the only distribution from the account during the waiver process.)
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Tips & Warnings
Required distributions on the IRA can be stretched using the age of the oldest contingent beneficiary when a waiver is performed. This means that a spouse who waives an IRA inheritance can pass the money to children, thereby reducing the amount distributed from the IRA over a longer period using the oldest child's age.
Talk to a tax adviser or financial planner about the benefits and disadvantages of doing an IRA waiver.
