Who Owns IRA After Death, the Deceased or Beneficiary?

Inherited individual retirement account, or IRA, rules are complicated. Generally speaking, if you inherit an IRA, you are its owner. However, if the decedent didn't name a designated beneficiary with the IRA's trustee, the account passes to her estate, where it's subject to probate. Even if you're the account's designated beneficiary, you may be required to keep the original owner's name on the account along with your own.

Designated Beneficiary Rules

IRAs are a unique asset in that the original owner can name one or more beneficiaries to inherit the account immediately following her death. This entitles the beneficiaries to certain rights. A spouse who is an IRA's sole beneficiary may treat the account as his own. Nonspouse beneficiaries may only be required to withdraw a portion of the IRA's assets annually rather than close the account, thereby extending its tax shelter.

Estates as Beneficiaries

If the original owner failed to name any IRA beneficiaries, or if the designated beneficiaries are themselves deceased, the account automatically passes to probate. In probate court, a judge decides who is to inherit the IRA. The process allows competing interests to claim the assets, including the deceased's creditors. No matter who ends up with the account, IRS rules require that it's emptied within five years following the original owner's death.

Spousal Beneficiaries

A spouse who is an IRA's sole beneficiary may treat the assets as his own. This means a spouse can put his name on the account and continue contributing to it if he's otherwise eligible. Or he can roll the account into an existing IRA of his own. As the owner, a spouse can also delay withdrawals indefinitely if he inherited a Roth IRA, or until the year he turns 70 1/2 if he inherited a traditional IRA.

Non-spouse Beneficiaries

Non-spouse beneficiaries and spouse beneficiaries who choose not to treat the IRA as their own can't contribute to the account. They have two options: Close the IRA by the end of five years or take required minimum distributions, or RMDs, beginning the year following the original owner's death. The IRS calculates RMDs by dividing the account's worth the previous Dec. 31 by the beneficiary's life expectancy. A young person who inherits an IRA would have small RMDs and can potentially keep the account open for years.

Titling an Inherited IRA

A spouse who treats an inherited IRA as his own can simply retitle inherited IRAs in his own name. A non-spouse beneficiary, on the other hand, must keep the decedent's name on the account, as her right to keep the IRA open is based on her status as a designated beneficiary. According to the "Wall Street Journal," the title might look like this: "Janet Johnson, IRA — deceased April 1, 2010 — F/B/O Jack Johnson, beneficiary."