How the Inherited IRA Rules Work for a Nonspouse Beneficiary

• Author: Seymour Goldberg
• Profession: Senior partner in the law firm of Goldberg & Goldberg, P.C., Woodbury, New York
• Pages: 19-23

19

HOW THE INHERITED

IRA RULES WORK

FOR A NONSPOUSE

BENEFICIARY

The concept of an inherited IRA for a nonspouse beneficiary is the ability

of a nonspouse beneficiary to receive distributions from a deceased IRA

owner’s account over the life expectancy of the nonspouse beneficiary.

For purposes of this guide, a nonspouse beneficiary means an individual,

not an estate or charity. Also, an IRA trust for the benefit of a nonspouse

beneficiary, if done correctly, can provide for stretch payments for the

individual beneficiary of the IRA trust.

The rules involving multiple nonspouse beneficiaries and the spousal

IRA rules will be discussed in other sections of this guide. It is important

from a tax planning and estate planning point of view to know how to

implement the extended payout rules for a nonspouse beneficiary.

The rules, subject to the terms of the IRA agreement, are found

in the IRS regulations and other IRS guidance. Basically if done right,

the rewards can be significant for the IRA owner’s beneficiaries. If done

incorrectly or carelessly, then the results can be financially hazardous to

the IRA owner’s beneficiaries.

Let’s hope that you can use the points described in the guide to do

the right thing at the right time.

By using the examples that follow, you and your beneficiaries should

realize how detailed and straightforward the rules are. The key to the

distribution rules is implementation and follow- up. Each example will

be explained in nontechnical terms to the extent that the author is able

to do so. Often the examples hit home where words fail. Where a word

is italicized, it is done intentionally so that you remember it.

Before we get started, we must go over a few important points and

definitions. For example: