How to Transfer IRA Funds to a Beneficiary
- 1). Check the beneficiary designation on the account. When an investor opens an IRA account, they are required to choose beneficiaries. Often, the beneficiary is the spouse of the decedent, but there are situations in which an account owner designates one or more other people as the heirs to the account, and possibly in unequal percentages. As the rules for IRA distributions to beneficiaries vary based on the relationship of the heirs to the owner, this is a critical first step.
- 2). Follow the varying IRS beneficiary distribution rules. If the heir to the account is a spouse, you can distribute the IRA assets in one of three ways, depending on the wishes of the spouse. The first option is to rename the account in the name of the spousal heir, and to treat the IRA thereafter as the property of the spouse. A second option is to roll the decedent's IRA assets into either the existing IRA of the spouse or into a qualified employer retirement plan owned by the spouse, such as a 403b plan. A final option is to make a full distribution to the spousal heir. For non-spousal IRA heirs, there are two primary options. The first is to perform a trustee-to-trustee transfer of the decedent's assets into an IRA titled in the name of the decedent for the beneficiary of the heir. The final option, as with a spousal heir, is to take a full distribution of the account assets.
- 3). Verify the RMD status of the account. Determining the RMDs for beneficiaries can be a complicated process, and you may need the assistance of a tax adviser. However, in most cases, the IRS specifies that if the owner died on or after his required beginning distribution date, a beneficiary must base his RMDs on either the decedent's life expectancy or the beneficiary's life expectancy, whichever is longer. The decedent's life expectancy is determined using IRS Publication 590, while the beneficiary's life expectancy is determined using IRS Table 1. If the account owner died before the required beginning date, the RMDs should be calculated based on the life expectancy of the heir. Numerous other rules for special situations exist, such as if there are multiple beneficiaries, if the beneficiary is a trust, or if any of the beneficiaries have died before distribution.
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