These answers are informational only and are not intended to address all possible situations that might arise with respect to the question asked. You should check IRS Publication 590 for more information (keep in mind that the IRS does not stand behind any advice they give) and check with a qualified advisor before doing IRA transactions and especially before trying to correct something that may be wrong. Any tax advice is not intended or written to be used, and cannot be used by any taxpayer, for the purpose of avoiding tax or penalties.

Can I name a trust as the beneficiary of my IRA or Roth IRA?

Yes, you can name a trust as the beneficiary of your IRA or Roth IRA. BUT, do not do this unless you understand all of the ramifications of having a trust instead of an individual inheriting the IRA. Always consult with an IRA expert advisor before taking this step. NEVER, NEVER, NEVER move your IRA assets into the trust or retitle your IRA into the name of the trust. Both of those actions are taxable events and you will owe income tax on the entire balance in your IRA and you will no longer have an IRA!! The trust should simply be named as the beneficiary on the beneficiary form.

Who takes the year of death required distribution from an IRA?

Any remaining amounts of the year of death required distribution MUST go to the beneficiary. The distribution never goes to the decedent or to the estate, unless the estate is the beneficiary. Any required distributions that are not taken will be subject to the 50% penalty and are reported on Form 5498 by the beneficiary for the year the distribution was missed.

I just inherited an IRA or Roth IRA from my spouse. What do I do now?

Under the tax code you have three options, but your IRA custodian may limit these options. You will need to check with the custodian to see what your options are.

1. You can leave the IRA where it is and remain a beneficiary. This is generally not recommended. When you start taking distributions they will be accelerated and your beneficiaries may not be able to stretch distributions over their lives when they inherit from you. However, it could be beneficial for a younger spouse who will need funds from the IRA to live on before attaining age 59 ½. Distributions from the inherited IRA will not be subject to the 10% early distribution penalty. Required distributions will begin in the year the account owner, not you, would have attained age 70 ½ or in the year after death if the owner was already 70 ½.

2. You can leave the IRA where it is and have it retitled in your own name and social security number. Some IRA custodians may not allow you to do this but it is a simple way for you to get the IRA in your own name. The account is treated as if it had always been yours and distributions to you will begin when you turn 70 ½ or in the year after death of the account owner if you are already 70 ½.

3. You can move the funds to an IRA in your own name. This can be either a new account or an IRA that you already had in your name. If you are under the age of 59 ½, any funds you take out of an account you own will be subject to the 10% early distribution penalty. The account is treated as if it had always been yours and distributions to you will begin when you turn 70 ½ or in the year after death of the account owner if you are already 70 ½.

Whatever option you use, always be sure to name your own beneficiaries on the account you have inherited. Any required distributions that are missed will be subject to the 50% penalty and are reported on Form 5498 for the year the distribution was missed.

I just inherited an IRA from someone who is not my spouse. What do I do now?

You will have to check with the IRA custodian to see what your options are under each IRA account you have inherited. Custodians can limit your options.

Under the tax code, any living beneficiary that is named on the beneficiary form can stretch distributions over their life expectancy. In order to do this you must first establish a properly titled inherited IRA. The title MUST include the name of the decedent. For example: John Smith, deceased, IRA for the benefit of Mary Jones. Then the funds are transferred, ONLY as a trustee-to-trustee transfer, to the inherited account. Any distribution that is payable to you will be taxable and will not be eligible to go into any IRA account.

You should than name your own successor beneficiaries, if the IRA custodian allows this, and you will have required distributions beginning in the year after the account owner’s death. Any required distributions that are missed will be subject to the 50% penalty and are reported by the beneficiary on Form 5498 for the year the distribution was missed.