Taxes & Insurance

If you inherit an IRA, for maximum tax deferral, you should:

  • Check that the beneficiary forms and related paperwork are in place.
  • Find out if a long-term stretchout will be permitted. If not, switch to a cooperative custodian.
  • Don’t accept checks that terminate an inherited IRA if you want to maintain the tax-deferred compounding.
  • Nonspouses should insist that the IRA provider keep the IRA in the deceased owner’s name. If the IRA is retitled in the name of a nonspouse, distributions will be accelerated.

If you’re the trustee or the beneficiary of a trust that has been named an IRA beneficiary, notify the custodian as soon as possible that the account should not be re-titled in the name of the trust.

To qualify for a stretchout, the IRA should be kept in the decedent’s name, perhaps in a special “for the benefit of” account. Changing the account’s name to that of the beneficiary results in a taxable distribution.

What if the custodian re-titles the account in the name of the beneficiary? You may be able to catch it and have it changed back before a Form 1099-R is sent out, reporting the income to the IRS.

  • In case an IRA provider has lost or destroyed forms, consider legal action. IRA custodians are responsible for the related paperwork as well as for the assets in the account.