The IRS Requirements for IRAs With No Beneficiaries
From the point of view of the IRS, no IRA is without a beneficiary. If you haven't chosen a beneficiary and completed the required paperwork prior to your death, your custodian or trustee defaults to the language in the IRA agreement that you signed to determine who will benefit from the funds in your IRA.
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Background
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Individual retirement accounts were introduced in 1974 with the enactment of the Employee Retirement Income Security Act, or ERISA, according to the Congressional Budget Office. An IRA is an individual retirement arrangement governed by the Internal Revenue Service for the purpose of deferring income taxes during the lifetime of the IRA owner. The taxability of funds from an IRA after the owner's death is determined by the type and age of the beneficiary or beneficiaries that the owner chooses.
Beneficiaries
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The IRS has very few requirements for beneficiaries. You can name any person or persons, a charity, a trust or your estate as beneficiaries. The IRS's interest in your named beneficiaries has more to do with when required minimum distributions are made. RMDs are based upon the ages of your beneficiaries.
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No Named Beneficiary
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If you die before you have named a beneficiary of your IRA, the agreement you initially signed to create the IRA with a custodian or trustee has language in the agreement stating how the IRA will be distributed if you have no named beneficiary. In most cases, the custodian or trustee's agreement will name your estate as the beneficiary of your IRA should you die without naming another beneficiary. For this reason, the IRS has no specific requirements for IRAs with no beneficiaries. In the view of the IRS, your IRA always has a beneficiary, even if it's only your estate.
Death of a Beneficiary
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The IRS does have requirements to determine who is the beneficiary of your IRA should a named beneficiary die by Sept. 30 of the year following your death. According to Publication 590, if a person who is a beneficiary of the IRA as of the owner's date of death dies before Sept. 30 of the year following the year of the owner's death without disclaiming entitlement to benefits, that individual, rather than his successor beneficiary, continues to be treated as a beneficiary for determining the distribution period. The IRS is only interested in a beneficiary's death with regard to determining the date that required minimum distributions begin.
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