Subsequent Benef to an inherited IRA

Submitted by Jeffrey J Pritchett on Mon, 2018-06-11 16:20

Here is the scenario: Grandma, age 80 dies and leaves IRA to son. Son established inherited IRA, assigns spouse as his benef, and begins inherited IRA distributions to satisfy RMD requitements. 10 years later son dies and his spouse transfers this money to an inherited IRA with son as deceased and spouse as the subsequent benef. The spouse begins taking RMD distributions from the new inherited IRA continuing the schedule established by son and Grandma. The current IRA custodian says that because spouse is a subsequent beneficiary of this inherited IRA than the estate is the only allowable benef of this account. Is this a custodian rule or an IRS rule?



Submitted by Alan - IRA critic on Mon, 2018-06-11 17:15

  • It is possible that the IRA agreement might include a provision not allowing a non spouse beneficiary to name a successor beneficiary, but if so why did they allow son to name one in the first place?  This is not an IRS rule. In all such questionable situations, the actual IRA agreement beneficiary clause should be carefully examined to determine the provisions. My guess would be that the rep is misinformed, and the beneficiary clause should be examined and/or the question elevated to supervisory level at the custodian. 
  • If the agreement actually contained such a provision, and the IRA went to the estate of the son, if the son’s will listed his spouse as beneficiary, the inherited IRA could be assigned to the spouse by the executor and RMDs would just continue to the spouse using the son’s RMD schedule. Therefore, if this custodian did have such a restriction in their agreement, it would not necessarily result in a lump sum distribution being made unless there were other related provisions in their beneficiary clause.

Submitted by Jeffrey J Pritchett on Mon, 2018-06-11 20:18

I think you misunderstand the question.  The original inherited IRA had Grandma as deceased and son as benef.  The son named his spouse as the sole benef.  Then son died.  The spouse ends up with an inherited IRA structure of son as deceased and spouse and subsequent benef.  This new IRA still follows the original inherited IRA RMD schedule but because the spouse is designated as a subsequent benef, that spouse can not name new benef according to the current custodian.  My question is this a custodian agreement restriction or an IRS rule

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