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How could an IRA account fail to name a living beneficiary? There are a myriad of reasons. Like the original owner, the beneficiary generally will not owe tax on the assets in the IRA until he or she receives distributions from it. Generally, the entire interest in a Roth IRA must be distributed by the end of the fifth calendar year after the year of the owner's death unless the interest is payable to a designated beneficiary over the life or life expectancy of the designated beneficiary.
If paid as an annuity, the entire interest must be payable over a period not greater than the designated beneficiary's life expectancy and distributions must begin before the end of the calendar year following the year of death.
Generally, a beneficiary reports pension or annuity income in the same way the plan participant would have reported it.
However, some special rules apply. A beneficiary of an employee who was covered by a retirement plan can exclude from income a portion of nonperiodic distributions received that totally relieve the payer from the obligation to pay an annuity.
The amount that the beneficiary can exclude is equal to the deceased employee's investment in the contract cost. We value your trust.
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One wrong decision can lead to expensive consequences, and good luck trying to persuade the IRS to give you a do-over. An inherited IRA is an individual retirement account opened when you inherit a tax-advantaged retirement plan including an IRA or a retirement-sponsored plan such as a k following the death of the owner. Some states give it all to the surviving spouse, others give some to the surviving spouse and some to descendants.
If you have a valid will, the probate court will generally follow the instructions in the will regarding who gets how much. However, having the estate inherit the IRA assets, whether a will exists or not, usually results in the worst outcomes. It is far better to name beneficiaries from the start.
By naming beneficiaries correctly, there will be less expense, aggravation, processing time and taxes for your descendants. For instance, if you wanted your daughter to inherit upon your death and she was properly named a beneficiary, she could opt to leave most of the money in an inherited IRA. She would only need to take out a required minimum distribution each year based on her life expectancy.
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