Ask the expert: Get rules in writing from your IRA provider

My IRA is at an insurance company and I now take required minimum distributions (RMDs). My four nieces (ages 47-52) are listed as my beneficiaries. The company tells me that upon my death, my beneficiaries only have the options of taking a lump sum or withdrawing the balance of my IRA within five years. I thought the law was that IRA beneficiaries could take RMDs based on their life expectancy.

You’re right. The law lets beneficiaries empty inherited IRAs based on their life expectancies, and most providers offer that option. But they’re not required to do so.

Like employer-sponsored retirement plans, IRA providers can establish their own rules. Those rules can’t be more generous than the law; but they can be more restrictive. Your insurance contract may indeed limit non-spouse beneficiaries’ distribution options to a lump sum or five-year payout, says Ed Slott, a Rockville Centre IRA expert. “But it’s possible that this is misinformation or a misunderstanding,” he adds. “I would contact the company and ask them to show you in writing where it says that those are the only options for beneficiaries.”

Readers, take note: Before opening an IRA, ask for a copy of the provider’s rules governing the account. Among the questions to ask: If you ever decide to move your IRA to a different provider, will you have to pay a termination fee? Would this provider transfer your IRA to another institution in a direct, trustee-to-trustee transfer? (Direct transfers are always best because they don’t involve tax withholding.) What are your beneficiaries’ options after your death? Can beneficiaries roll the account into Inherited IRAs from which they’ll take RMDs based on their own life expectancies?

THE BOTTOM LINE An IRA provider’s rules can be more rigid than the law.

WEBSITES WITH MORE INFORMATION irs.gov/retirement-plans/required-minimum-distributions-for-ira-beneficiaries

apps.finra.org/Calcs/1/RMD