If any person named in the plan documents as beneficiary but is no longer a beneficiary as of September 30 of the year following the year of death, that person will not be considered when determining the designated beneficiary. This could come about if one of the original beneficiaries chose to disclaim entitlement to the account.
If an individual who is a beneficiary as of the owner’s date of death dies prior to September 30 of the year following the year of death, that individual is still considered to be the beneficiary, rather than any contingent beneficiaries. The deceased beneficiary’s estate would receive the account and her age would be used for determining distribution.
Required Minimum Distribution (RMD) Rules
It is important to note, the following RMD rules apply:
You’re allowed to spread the distribution out in monthly, quarterly, or any schedule of payments as long as it’s at least annually; if you’re the beneficiary of more than one IRA, you must determine the RMD and withdraw it from each inherited IRA individually; as well as if you receive more than the minimum required in any one year, you do not receive “credit” against future distribution requirements.
Multiple Beneficiaries
If there are multiple beneficiaries of a single account, and all of the beneficiaries are individuals (not trusts), as indicated earlier, the beneficiary with the shortest life expectancy¹ is used to determine RMD for the account.
If an account is split into separate accounts with separate beneficiaries prior to the September 30 deadline in the year following the death of the owner, each account is treated separately with regard to inheritance rules, not aggregated.
Trust as a Beneficiary
If a trust is the named beneficiary, on September 30 of the year following the year of the death of the owner, the beneficiary(s) of the trust will become the designated beneficiary(s) of the IRA as long as the following are true:
- The trust is a valid trust under estate law, or would be but for the fact that there is no corpus.
- The trust is irrevocable or will become irrevocable by terms, upon the death of the owner.
- The beneficiary(s) of the trust are specifically identified from the trust document.
- The IRA custodian or trustee has received documentation of the trust by October 31 of the year following the year of the owner’s death.
- If the beneficiary of the trust is another trust, as long as the second trust meets the requirements above, the beneficiary(s) of the second (or subsequent) trust will become the designated beneficiary(s) of the IRA.
- The four points above are a definition of a See-Through Trust (or Look-Through Trust), which is the only valid type of trust that can be a beneficiary of an IRA and allow the trust beneficiary(s) to defer distribution beyond the default five-year distribution period.