RKW Law Group Logo

10075 Red Run Boulevard
Suite 401
Owings Mills, MD 21117
(443) 379-4900

10 North Jefferson Street
Suite 200
Frederick, MD 21701
(240) 220-2415

What Will Happen To Your IRA When You Pass Away?

April 18, 2024

Diane Kotkin

Q:  I have not designated beneficiaries for my IRA. Why do I need to complete a beneficiary designation form? Won’t it be distributed to my heirs?

A:  When you die with an IRA and no beneficiary designation, the IRA assets will be subject to the rules outlined by the IRA custodian or the plan documents. In most cases, the beneficiary is the decedent’s estate or the surviving spouse.

However, it’s not that simple. Not having a designated beneficiary will complicate the distribution of assets after your death.

If an IRA is payable to the estate, a probate estate will need to be opened which will subject the proceeds to creditor’s claims. Also, due to the SECURE Act, the IRA will have to be distributed within an accelerated time period.

If there is a surviving spouse, most, but not all, plans allow the spouse to roll over the IRA into their own retirement account which gives them maximum flexibility in terms of administering the IRA, and it gives them maximum deferral, in terms of taking required distributions. Generally, when they roll it over, distributions do not have to begin until they reach Required Minimum Distribution (RMD) age: currently 73.

If there is no surviving spouse, but there are adult children, they will most likely receive their portion as an inherited IRA. The inherited IRA distribution options are: (1) Cash it out immediately (not usually recommended as they will be taxed all in one year) or (2) withdraw it over a period of time. That distribution time period will depend on whether the decedent died before or after being required to take distributions. If the decedent died before taking RMDs, the account must be fully distributed within 5 years. If the decedent died after taking RMDs, the account must be fully distributed over the deceased IRA owner’s remaining single life expectancy.

If there are minor children, the rules are different and it is possible that a guardianship proceeding may need to be opened to administer their portion which involves a court-supervised proceeding, lawyers and annual accountings.

As you can see, the rules are complicated and not designating a beneficiary makes it worse. To avoid these potential complications, it is highly recommended to designate a beneficiary for your IRA. This can be done by completing a beneficiary designation form provided by the IRA custodian. The designated beneficiary can be a spouse, child, family member, or even a trust.

By designating a beneficiary, you have more control over the distribution of your IRA assets and can potentially minimize taxes and legal complexities. It is important to not only complete your beneficiary designation but also consult with a qualified estate planning attorney to ensure a smooth distribution of your IRA assets. It is important to know that your beneficiary designations are consistent with your overall estate plan and understand how they work when you pass away. If you don’t, you may be subjecting your heirs to complication, court interference and increased taxes.


© 2024 RKW, LLC. All Rights Reserved.

Disclaimer | Privacy Policy

Sign up for our weekly newsletter