When you open an individual retirement account (IRA), the IRA provider will require you to name a beneficiary for the account. If you pass away before withdrawing the money in the account, it will go to the beneficiary you name. When your beneficiary receives access to the account, he has a few options to consider.
Specifying the Beneficiary
When you set up your account or if your situation changes, you need to name the proper beneficiary for your account. Fill out a beneficiary form with your IRA provider, and list the name, address and phone number of the person you want to have your account. You can also name contingent beneficiaries, who can inherit the account if your primary beneficiary is not able to do so.
Inherited IRA Rules
The beneficiary's relationship to the deceased person plays a role in what the beneficiary can do with the IRA funds. If you were married to the person who died, you can roll the funds from the IRA into your own IRA and continue saving. If you were not married to the deceased person, you cannot mix the funds with your own retirement funds. In that case, you must keep the IRA intact and take distributions from it.
Duration of Distributions
If you, as the beneficiary, were not the spouse of the deceased IRA owner, you must take distributions (withdrawals) from it over a certain period. If the deceased had not started taking required minimum distributions (RMDs) from the account, you need to take distributions so all the money is withdrawn from the account within five years. If the account holder had already begun to take RMDs, you will have the option to take distributions based on your life expectancy.
Transferring the IRA
If the IRA is held by a custodian with which you do not feel comfortable, you have the option of transferring to another provider. For example, some providers do not allow you to take distributions over the course of your life expectancy. In this case, you can transfer the funds to a provider that does. You simply need to fill out a transfer form with your custodian and open a new IRA with another provider. The money will be transferred from one custodian to the other in a trustee-to-trustee transfer.