How to Pass Along an IRA to Your Heirs

by Ciaran John ; Updated July 27, 2017

Many people name beneficiaries for their individual retirement accounts because failing to do so often results in the funds being depleted due to costs related to probate. IRA beneficiaries can take control of an account immediately after the owner's death, regardless of probate proceedings involving other assets. You can name more than one beneficiary for an IRA, and many people name successor beneficiaries in case the primary beneficiary dies before receiving the funds.

Step 1

Review your accounts and determine how much money you want to leave to each heir. Withdrawals made from a Traditional IRA account are subject to income tax, whereas funds held in a Roth IRA account are not subject to income tax. If you have both types of IRA, consider the tax implications when dividing accounts among heirs. Decide how much you want each heir to receive, and then try to estimate the person's tax burden when deciding whom to name as a beneficiary for each account.

Step 2

Provide your bank with the name, Social Security number, date of birth and physical address of each person that you intend to name as a beneficiary. You can name your heir's children or other relatives as successor beneficiaries in the event that your beneficiary dies before accessing the funds. Provide the bank with the information on any successor beneficiaries.

Step 3

Contact your broker or any insurance companies that hold IRA accounts on your behalf. Most investment firms require account holders to provide a letter of instruction that details the addition of beneficiaries to an account. In some states, you must complete a form to add beneficiaries to annuity accounts. With annuities you must specify how much, as a percentage, each beneficiary should receive. With bank accounts the funds are split equally among named beneficiaries.

Tips

  • IRA account beneficiaries do not have to withdraw funds from the account until Dec. 31 in the fifth year after the account owner dies. Some people delay taking funds from Traditional IRAs for tax reasons.

Warnings

  • Some states, such as California, Idaho and Texas, have marital property or community property laws that entitle your spouse to your IRA money. For you to name your heirs as the beneficiaries, your spouse must sign a spousal waiver form.

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