February 22, 2020

Eligible Designated Beneficiary

Your Guide

An eligible designated beneficiary is a beneficiary designated as beneficiary of the IRA, by the IRA owner or determined under the IRA agreement and is :

A. the surviving spouse of the IRA owner

B. a child of the IRA owner who has not reached the age of majority, as defined under state law. Once the child reaches the age of majority, that child becomes a regular designated beneficiary, and has 10 years (after reaching the age of majority) to distribute the inherited IRA

C. a designated beneficiary who is disabled- which generally means meeting the social security administration’s definition of disability

D. a chronically ill individual – subject to meeting certain specific requirements, or

E. an individual not described in any of the preceding requirements, who is not more than 10 years younger than the IRA owner.

Written By

Retirement Dictionary Staff

Frequently Asked Questions Regarding

The grandchild (son) should take distributions over his mother’s life expectancy. The mother’s life expectancy is determined in the year after the grandfather died, and 1(one) is subtracted for each year that has passed.

A second generation beneficiary’s (or successor beneficiary’s) life expectancy is never used to determine distributions from an inherited retirement account.
The matter of how the account should be titled for a second generation beneficiary (successor beneficiary) is one of those issues which has not yet been addressed. So, I can only give my opinion.
Based on the guidance provided in the instructions for filing IRS Form 1099-R and Form 5498, and IRS Notice 2007-7, the account should be titled “Grandchild beneficiary  of Mother( deceased) IRA”, or any other variation, providing it shows the grandchild is the beneficiary, and the mother is the decedent.
IRS Notice 2007-7 A-13 states that “ The IRA must be established in a manner which identifies it as an IRA with respect to a deceased individual and also identifies the deceased individual and the beneficiary, for example, “Tom Smith as beneficiary of John Smith.” Therefore, since the grandchild is the beneficiary of the mother, the registration should show the mother’s name and the child’s name.
Before notice 2007-7 was issued, I would have been less certain, as the instructions for 1099-R/5498 were not as clear.

No. You cannot rollover or transfer an IRA that you inherited from your uncle to your own IRA, because you are a non-spouse beneficiary. A non-spouse beneficiary is defined as a beneficiary that is not the surviving spouse of the deceased IRA owner. Instead , you may transfer the funds to an Inherited IRA . An Inherited IRA is one that is registered in the names of the decedent and the beneficiary ( in this case, your name and your uncle’s { the decedent} name), using your social security number. An example of a registration that satisfies the IRS requirements is: IRA FBO Jim P, Beneficiary of Tom S (Deceased)”. Any variation of this will work, as long as it is clear who is the beneficiary and who is the decedent. Some financial institutions may shorten ‘beneficiary’ to read ‘bene’, ‘beneficiary of ‘to read ‘B/O’ and/or ‘deceased’ to read ‘decd’.

 

If an individual fails to distribute his RMD by the deadline, he will owe the IRS an excess accumulation penalty of 50% of the shortfall. The excise tax is reported on IRS Form 5329 and IRS Form 1040 (your income tax return).

If the client missed the deadline due to a reasonable cause, he may ask the IRS to waive the 50% excise tax, by attaching a letter of explanation to his completed Form 5329. He should include proof that he has taken steps to remedy the issue by withdrawing the amount. Proof of the withdrawal should be included with his request.

 

If the IRS approved his request, he would not need to pay the excess accumulation penalty

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