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Making Life Difficult For Your IRA Beneficiary

By Beverly DeVeny, IRA Technical Expert

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An IRA account owner is trying to keep things simple or just does not get around to changing a beneficiary form. Only one person ends up being named on the beneficiary form. The account owner exacts a promise from that person that they will make sure that the account is split between all the children, or all the grandchildren, or all the siblings or whoever is important to the account owner. The unwitting beneficiary agrees to this since, after all, it is only fair that the account be split.

Now the account owner has died and the beneficiary wants to do the right thing – split the account out the way the owner wanted it done. But there is just one problem. The inherited IRA cannot be assigned or gifted from the inheriting beneficiary to the other intended beneficiaries. Every penny the inheriting beneficiary takes out to give to an intended beneficiary is included in the inheriting beneficiary’s income, not the income of the intended beneficiary.

You also run up against the gifting rules. The inheriting beneficiary can only give up to $13,000 (in 2012) to any individual in the year. If he gives more than that, he has to file a gift tax return.

This may have kept things simple for the account owner, but it creates a nightmare for the inheriting beneficiary. If the account owner truly wants to keep things simple, then he or she should have a beneficiary form that names exactly who should inherit the asset and it should include the exact share they should inherit.


  • Name the exact individuals you want to inherit your IRA on the IRA beneficiary form
  • IRAs cannot be transferred or assigned to beneficiaries who should have inherited but were not named
  • The named beneficiary must pay all income taxes on distributions


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