Treatment of inherited IRA upon death
Situation: Widow has an IRA she inherited from her late husband titled, “John Doe f/b/o Jane Doe.”
Question: When Jane Doe passes away, does this IRA pass based upon beneficiary designation form(s) filled out by Jane Doe or does it simply become an asset of her estate?
Permalink Submitted by Alan Spross on Thu, 2007-08-16 18:31
The IRA custodian should allow her to name her own successor beneficiary, as the IRA would not pass to a contingent beneficiary that her husband originally listed. That beneficiary listing is wiped out by his death, so if Jane passes without having done anything, the IRA would pass to the default beneficiary under the terms of the IRA agreement. Since she is a widow, that would typically be her estate, and that’s not a good way to leave an IRA. She should name a person or charity as her successor beneficiary.
There may still be some IRA custodians who do not allow her to name her own beneficiary (which actually subjects them to more work later on), and if that happens to be the case, she should transfer the account to another custodian who will allow her to name her own beneficiary.
Hopefully, she is taking RMDs required as a beneficiary, and it may also be appropriate to make this her own IRA, which she can do at any time, particularly after age 59.5 when her early withdrawal penalty would disappear from her own IRAs.
Permalink Submitted by [email protected] on Fri, 2007-08-17 19:09
Making it her own asap after age 59 1/2 gives her named bene(s) much better distribution options, as well.