What can I do now to help my IRA beneficiaries after I'm gone?

As I explained last week, your beneficiary designation forms determine how your IRA is distributed after your death. These forms are legal documents whose language varies from one IRA provider to another. The fine print sometimes creates problems for beneficiaries.

Here's what you should find out.

•    Could your beneficiaries move their shares of your IRA to new custodians if they wish? To avoid triggering taxes, an IRA that's inherited by a nonspouse must be moved in a trustee-to-trustee transfer, explains Ed Slott, a Rockville Centre tax accountant. This means the money is transferred electronically, or in the form of a check payable to the new IRA custodian, not to the IRA beneficiary. (For example, "To ABC Bank for the benefit of John Smith IRA.") Some custodians effectively hold inherited IRAs hostage by not doing trustee-to-trustee transfers. "All they'll do is give your beneficiary a check payable to him, making the money immediately taxable."

•    Will the IRA be distributed "per capita" or "per stirpes"? Let's say your named beneficiaries are your son and daughter, each of whom has two kids. Maybe you assume that if you and your son died in a common accident, his kids would inherit his share of your IRA. Not necessarily! Most IRA beneficiary designation forms call for "per capita" distribution, which means money is paid only to living named beneficiaries. If you want "per stirpes" distribution, which follows the account owner's bloodline, you may have to ask for it.

•     Could your beneficiary name a "successor" beneficiary? That would let your grandchildren continue taking distributions from your IRA based on their parent's life expectancy, if necessary.

The bottom line

Find out how your IRA custodian's rules would treat your beneficiaries.

More information



TO ASK THE EXPERT Send questions to Ask the Expert/Act 2, Newsday, 235 Pinelawn Rd., Melville, NY 11747, or email act2@newsday.com. Include your name, address and phone numbers. Questions can be answered only in this column. Advice is offered as general guidance. Check with your own consultants for your specific needs.


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