IRAs and survivorship

[bobbee25]

I have both standard and Roths in my name.
If I go to the big house upstairs, preferred, do the IRAs simply convert over to my wife, she is the beneficiary. Are there any gotchas ?

 

[Amethyst]

Just attended a retirement seminar this week. Survivorship rules vary by state, but for us, the order of precedence is:
1. Your designated beneficiary on your financial institution's record (Note: if there's an ex-spouse in one's history, get that ex-spouse offa there!)
2. Your children
3. Your parents, if living
4. Your will, if you have one (that's right, the designated beneficiary can override your will!)
5. Any other next of kin

Amethyst

 

[MichaelB]

I have both standard and Roths in my name.
If I go to the big house upstairs, preferred, do the IRAs simply convert over to my wife, she is the beneficiary. Are there any gotchas ?

As long as she is the sole beneficiary, no gotchas.

Edit to add: IRA inheritance is a bit complicated and it would help to leave a summary of how they should be managed. For example, should they be rolled over into other existing IRAs or left standalone, how to determine if the mandatory distribution was taken the year of your departure.

 

[RunningBum]

Just attended a retirement seminar this week. Survivorship rules vary by state, but for us, the order of precedence is:
1. Your designated beneficiary on your financial institution's record (Note: if there's an ex-spouse in one's history, get that ex-spouse offa there!)
2. Your children
3. Your parents, if living
4. Your will, if you have one (that's right, the designated beneficiary can override your will!)
5. Any other next of kin

Amethyst

Spouse isn't on here, between 1 & 2?

 

[kaneohe]

https://www.fidelity.com/ira/inherited-ira

Please note that things can be somewhat confusing since "inherited" IRA can be used as a man-on-the-street general term or as a "technical" term (meaning not-your-own in the case of a spouse) and the implications are different.

http://www.bogleheads.org/wiki/Inheriting_an_IRA

 

[jerome len]

FYI, read the weekend edition of Wall Street Journal. IRA's are a hot button with the IRS, according to them. And, I just moved an IRA to Vanguard, wanted to put my wife on as beneficary and they told me she automatically inherits unless she has signed a waiver of her right to do so. So, she'll get it, regardless of instructions to the contrary.

 

[JOHNNIE36]

FYI, read the weekend edition of Wall Street Journal. IRA's are a hot button with the IRS, according to them. And, I just moved an IRA to Vanguard, wanted to put my wife on as beneficary and they told me she automatically inherits unless she has signed a waiver of her right to do so. So, she'll get it, regardless of instructions to the contrary.

Again, could this be because of the state in which you live?

 

[kaneohe]

Again, could this be because of the state in which you live?

Agree that this doesn't sound like a general rule; sounds more like the ERISA rule for 401Ks than an IRA rule.

from VG IRA disclosure: (sure sounds like you could designate someone else besides spouse to be beneficiary)

(a) Traditional IRAs Where Investor Dies Before Required
Beginning Date and All Roth IRAs. For traditional IRAs where the
Investor dies before his or her required beginning date and for all Roth
IRAs, the Investor’s interest must be distributed at least as rapidly as
follows:
(i) If the designated Beneficiary is someone other than the Investor’s
surviving Spouse, the entire interest must be distributed, starting by
December 31 of the calendar year following the calendar year of the
Investor’s death, over the remaining life expectancy of the designated
Beneficiary, with such life expectancy determined using the age of
the Beneficiary as of his or her birthday in the year following the year
of the Investor’s death, or, if elected, in accordance with paragraph
(a)(iii) below.
(ii) If the Investor’s sole designated Beneficiary is the Investor’s
surviving Spouse, the entire interest must be distributed, starting
by December 31 of the calendar year following the calendar year of
the Investor’s death (or by the end of the calendar year the Investor
would have attained age 70
1
⁄2, if later), over such Spouse’s life,
V A N G U A R D17
or, if elected, in accordance with paragraph (a)(iii) below. If the
surviving Spouse dies before distributions are required to begin, the
remaining interest must be distributed, starting by December 31 of
the calendar year following the calendar year of the Spouse’s death,
over the Spouse’s designated Beneficiary’s remaining life expectancy
determined using such Beneficiary’s age as of his or her birthday
in the year following the death of the Spouse, or, if elected, in
accordance with paragraph (a)(iii) below. If the surviving Spouse
dies after distributions are required to begin, any remaining interest
will be distributed over the Spouse’s remaining life expectancy
determined using the Spouse’s age as of his or her birthday in the
year of the Spouse’s death.
(iii)If there is no designated Beneficiary, or if applicable by operation
of paragraph (a)(i) or (a)(ii) above, the remaining interest must be
distributed by the end of the calendar year containing the fifth
anniversary of the Investor’s death (or of the Spouse’s death in
the case of the surviving Spouse’s death before distributions are
required to begin under paragraph (a)(ii) above).
(iv) The amount that must be distributed under paragraphs (a)(i) or (ii)
above is the amount determined by dividing the value of the IRA as
of the end of the preceding year by the remaining life expectancy
specified in such paragraph. Life expectancy is determined using the
Single Life Table in Q&A-1 of Section 1.401(a)(9)-9 of the Income Tax
Regulations. If distributions are being made to a surviving Spouse
as the sole designated Beneficiary, such Spouse’s remaining
life expectancy for a year is the number in the Single Life Table
corresponding to such Spouse’s age in the year. In all other cases,
remaining life expectancy for a year is the number in the Single Life
Table corresponding to the Beneficiary’s age in the year specified in
paragraph (a)(i) or (ii) and reduced by one for each subsequent year.
(b) Traditional IRAs Where Investor Dies on or After Required
Beginning Date. If the Investor dies on or after the required
beginning date, the remaining portion of his or her interest in the
Traditional IRA must be distributed at least as rap

 

[MichaelB]

Again, could this be because of the state in which you live?

Sounds like community property laws. I'd still formally designate DW to avoid court processes, probate and such.

 

[growing_older]

1. Your designated beneficiary on your financial institution's record (Note: if there's an ex-spouse in one's history, get that ex-spouse offa there!)
2. Your children
3. Your parents, if living
4. Your will, if you have one (that's right, the designated beneficiary can override your will!)
5. Any other next of kin

This is NOT what I have been told. I think your will if you have one should be #2 and then spouse, children, parents, other relatives according to the intestate laws of your state. Beneficiary forms at the account level go first and only if there is none, or if it defaults to "estate" does the will or any of the other possibilities come into play.

 

[MooreBonds]

As others have said in this thread, it depends on what state you live in:

Generally speaking, the designation of beneficiary form dictates who receives the assets from the individual retirement account (IRA). Therefore, no one else is entitled to receive any share of the IRA unless the named beneficiaries choose to disclaim their portions. However, if the IRA contributor resides in a community property state and the spouse did not approve the designation of beneficiary, he or she may be entitled to a portion of the IRA. Under the laws of these states, the spouse must be the primary designated beneficiary, unless he or she consents to another party being the primary designated beneficiary. The community and marital property states are Alaska, Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin.

Read more: Can a spouse who is not named as a beneficiary receive assets from an IRA?

This is also a good reminder that even if you setup/update your retirement accounts in Timbuktu, if you later move your official residence to a community property state and die after living there just one day, the new community property state rules will apply. If your spouse is on-board with disinheriting them for tax reasons, but your state of residence at death says otherwise, they can always disinherit your IRA...but it's an unnecessary, extra (messy?) step to go through.

 

[kaneohe]

Thanks to all you community property gurus for teaching this old dog a new trick. I live in a community property state and have known forever that the 401K must have a spousal waiver if you choose a non-spouse beneficiary. I have never selected a non-spouse beneficiary for my 401K but they kind of let you know by waving a 2 x 4 stick in the beneficiary forms.

On the other hand, I have filled out many IRA beneficiary forms but have never seen anything like that so had no clue. Thanks for enlightening me.

 

[rodi]

FWIW - our attorney advised us to name spouse as the primary beneficiary on the IRAs, and our living trust as the secondary beneficiary. The idea is that if the spouse dies first the trust is already set up to distribute your assets per your wishes. Since we have minor children and don't want them getting a lump sum at age 18 (before they necessarily have the maturity to handle big $) our trust addresses paying it over time/milestones. If we named the kids as secondary beneficiaries - they'd get the inherited IRA in one fell swoop.

 

[GrayHare]

FWIW - our attorney advised us to name spouse as the primary beneficiary on the IRAs, and our living trust as the secondary beneficiary. The idea is that if the spouse dies first the trust is already set up to distribute your assets per your wishes. Since we have minor children and don't want them getting a lump sum at age 18 (before they necessarily have the maturity to handle big $) our trust addresses paying it over time/milestones. If we named the kids as secondary beneficiaries - they'd get the inherited IRA in one fell swoop.

I understand your desire to not hand a youngster a large sum. However keep in mind that when your beneficiary is other than an actual person (such as your trust), upon your death the IRA must be paid out within 5 years rather than allowed to grow tax-free stretched over the lifetime of the beneficiary. Payout within 5 years represents the loss of a tax advantage that over time may be worth far more than the IRA's value at your death.

 

[Amethyst]

You're right, RB. Spouse should be at No. 2. [Insert trite comment about age-related memory loss or cute reference to "senior moment" here]. Again, the retirement adviser STRESSED that the designated beneficiary trumps all.

Amethyst

Spouse isn't on here, between 1 & 2?

 

[steelyman]

You may want to refer to Ed Slott's book, "The Retirement Savings Time Bomb... and How To Defuse It", which has been mentioned in various places and topics here on e-r.org.