How the Inherited IRA Rules Work for a Nonspouse Beneficiary

AuthorSeymour Goldberg
ProfessionSenior partner in the law firm of Goldberg & Goldberg, P.C., Woodbury, New York
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:

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