IRA IRA Beneficiary Rules and Inherited IRAs 2 — Questions and Answers
Question 1: What is a 'disclaimer' in the context of inherited IRAs?
- A statement that the beneficiary will not pay taxes on distributions
- A legal refusal of an inherited IRA that allows the assets to pass to the next beneficiary in line (Correct answer)
- A beneficiary's request to convert the inherited IRA to Roth
- A form filed with the IRS to request a distribution waiver
Correct answer: A legal refusal of an inherited IRA that allows the assets to pass to the next beneficiary in line
A qualified disclaimer allows a named beneficiary to refuse the inheritance within nine months, passing the account to the next beneficiary, which can be useful for estate planning.
Question 2: Under current IRS guidance, must non-spouse beneficiaries subject to the 10-year rule take annual RMDs during the 10-year period if the original owner died after their RBD?
- No, they can wait and take it all in year 10
- Yes, annual RMDs are required during the 10-year period, with the remaining balance distributed by year 10 (Correct answer)
- Only if the beneficiary is under age 59½
- No annual RMDs are ever required under the 10-year rule
Correct answer: Yes, annual RMDs are required during the 10-year period, with the remaining balance distributed by year 10
IRS proposed regulations clarify that if the original owner died after their required beginning date, non-spouse beneficiaries must take annual RMDs during the 10-year period based on the beneficiary's life expectancy.
Question 3: A minor child of the IRA owner inherits an IRA. Under the SECURE Act, what rules apply?
- Standard 10-year rule applies immediately
- They use the lifetime stretch until majority, then the 10-year rule kicks in (Correct answer)
- They have 25 years to distribute the account
- No RMDs are required until they turn 21
Correct answer: They use the lifetime stretch until majority, then the 10-year rule kicks in
Minor children of the IRA owner are EDBs and can use the lifetime stretch until they reach the age of majority, after which the 10-year rule applies.
Question 4: What is a 'see-through trust' in the context of IRA beneficiary designations?
- A transparent investment strategy for IRAs
- A trust that meets IRS requirements so that individual trust beneficiaries are treated as designated beneficiaries for distribution purposes (Correct answer)
- An IRA held in a revocable trust
- A trust used exclusively for Roth IRA assets
Correct answer: A trust that meets IRS requirements so that individual trust beneficiaries are treated as designated beneficiaries for distribution purposes
A see-through (or look-through) trust allows the trust to be treated as a designated beneficiary if it meets specific IRS requirements, including that all beneficiaries are identifiable individuals.
Question 5: Can a beneficiary of an inherited IRA make new contributions to the inherited account?
- Yes, up to the annual IRA limit
- No, beneficiaries cannot make new contributions to an inherited IRA (Correct answer)
- Yes, but only if they are a spouse
- Only if they roll it into their own IRA first
Correct answer: No, beneficiaries cannot make new contributions to an inherited IRA
No contributions can be made to an inherited IRA; beneficiaries can only take distributions from the account.
Question 6: What is the difference between a 'designated beneficiary' and an 'eligible designated beneficiary' for inherited IRA purposes?
- There is no practical difference
- A designated beneficiary follows the 10-year rule; an eligible designated beneficiary can use lifetime stretch distributions (Correct answer)
- A designated beneficiary gets tax-free distributions; an EDB does not
- An EDB must be a spouse; a designated beneficiary can be anyone
Correct answer: A designated beneficiary follows the 10-year rule; an eligible designated beneficiary can use lifetime stretch distributions
Designated beneficiaries (non-EDBs) follow the 10-year rule under SECURE Act, while eligible designated beneficiaries (surviving spouse, minor children, disabled/chronically ill, and those within 10 years of owner's age) can use the lifetime stretch.
IRA IRA Beneficiary Rules and Inherited IRAs 2
What is a 'disclaimer' in the context of inherited IRAs?