Brenner answers questions about all aspects of family finance.
You've written that a retirement account beneficiary can move the account into an inherited IRA after its owner dies. Can this beneficiary then name his own beneficiary? If not, what happens to the IRA upon his death?
Most IRA custodians allow beneficiaries to name successors. Reread the paperwork you filled out when you opened your IRA to make sure yours is among them. If you don't like what you discover, you can transfer your IRA to a custodian with more liberal rules without any tax penalty.
If no successor beneficiary is named, the account balance goes into the original beneficiary's estate.
An IRA beneficiary's beneficiary is called a successor beneficiary. A successor beneficiary can't take IRA distributions based on his or her own life expectancy. Successors inherit the original beneficiary's timetable along with the IRA.
Let's call the original beneficiary Maria. Maria's required minimum annual distribution equals the IRA balance at the previous year-end divided by her life expectancy factor, which is listed in the Internal Revenue Service "Single Life Expectancy" actuarial table. At age 40, Maria's life expectancy factor is 43.6. If last year's IRA balance was $200,000, her minimum required distribution this year is $4,587 ($200,000 divided by 43.6).
The older you, are the smaller your life expectancy factor and therefore the bigger your required distribution. At age 25, an IRA beneficiary has a 58.2 life expectancy factor. A 65-year-old beneficiary's life expectancy factor is 21. If Maria dies at age 65, her successor must take annual distributions based on Maria's remaining life expectancy regardless of his or her own age.
The bottom line The law doesn't require that IRA custodians allow beneficiaries to name successors. Check your paperwork to make sure your IRA custodian will permit your beneficiaries to name successors.
TO ASK THE EXPERT Send questions to Ask the Expert / Act 2, Newsday Newsroom, 235 Pinelawn Rd., Melville, NY 11747-4226, or email firstname.lastname@example.org. Include your name, address and phone number. Questions can be answered only in this column. Advice is offered as general guidance. Check with your own advisers for your specific needs.