Ask the Expert: Naming a beneficiary to an inherited IRA

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.