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