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IRA Beneficiary Gets Tax Break On Distribution
The tax laws require IRA distributions to be made "at least as rapidly" to the beneficiary as they were to the owner. When an IRA owner reaches age 70 ½, and begins to take required distributions, the elected distribution method generally determines the period over which the beneficiary will receive payments.
What happens when the IRA owner bases distributions on recalculated single life expectancy? Under a recent letter ruling, that's a problem: the recalculated expectancy must be reduced to zero at the end of the year following the owner's death. So what? That means that, unless some other life expectancy is being considered, the "at least as rapidly" rule could require the beneficiary to withdraw the entire IRA account balance at that point, and be taxed on it.
However, this letter ruling allowed the beneficiary to avoid the immediate tax. The ruling relies upon: 1) the fact that the IRA owner had received (and was taxed on) distributions that were larger than the required minimum distribution; 2) the owner's timely designation of the beneficiary before his required beginning date; and 3) the father's resulting accelerated receipt of his lifetime distributions.
Thus, the owner's acceleration election did not preclude the beneficiary from using her life expectancy after his death.
Source: Investment News, August 21, 2000
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Sponsored by James J. Eccleston, an attorney representing stockbrokers, financial planners and
investors nationwide in arbitration, litigation and regulatory matters, and a shareholder with the law firm
Shaheen, Novoselsky, Staat, Filipowski & Eccleston
P.C.(www.snsfe-law.com). This Web site contains material
of general interest. It is neither intended to, nor constitutes, either legal advice or investment advice.
Always consult an attorney and/or investment advisor when building and protecting your wealth.
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