Does the Sept. 30 IRA Beneficiary Deadline Apply to You?

September 30 marks another key date on the calendar regarding action needed to properly manage your own or an inherited IRA.  

If a loved one has passed, the final determination of who the “designated beneficiaries” of a that individual's IRA are must be completed by September 30 of the year following that person's death.

Related read: Important Considerations for Non-Spouse Beneficiaries

This determination is required for purposes of calculating the Required Minimum Distributions ("RMD") from a decedent’s IRA. A “designated beneficiary,” (a term defined in the Internal Revenue Code) is one who is set to receive IRA assets when the account owner dies and to any trusts that may list specific requirements.
 

While one can change beneficiaries at any time during one’s lifetime, this deadline also creates the opportunity for some post-mortem planning.   For example, a beneficiary can either disclaim (refuse to accept) or withdraw their entire share of the IRA by this date.  The annual RMD would then be determined, based only on the beneficiaries that remain, after one or the other of these transactions occurs.

Special rules also apply for trusts that are beneficiaries of IRAs.   For example, a trust may be a better beneficiary choice than an individual for asset protection reasons. In order to achieve more favorable income tax treatment, four things have to occur:

1. The trust document has to clearly identify the individual beneficiaries and this must be done by the above-mentioned date;
2. the trust must be valid under state law;
3. the trust must be irrevocable; and
4. the trust document and list of trust beneficiaries has to be provided to the IRA custodian by October 31 following the year of death.

This is only a snapshot of these rather complex rules, so make sure that you seek both tax and legal counsel when faced with decisions pertaining to IRA beneficiaries and RMDs.

Understanding IRA beneficiary deadlines can be confusing and, if not met accordingly, could affect your ability to use various strategies. If you have questions about your inherited IRA, beneficiaries, or how to plan your estate, contact us at info@zinnerco.com or 216.831.0733. We're ready to start the conversation.