IRA beneficiary upon owner death
A spouse (husband) has full ownership of his IRA in California (community state). Husband wants to make his son from prior marriage a beneficiary of his traditional IRA and also Roth IRA. The wife would not voluntarily consent to this beneficiary. What can a husband do in this case and how much money can be left to his son? Some of the money in this traditional IRA and Roth IRA come from the transfer from husband 401k and another part of the money come from other than 401k transfer.
Permalink Submitted by Alan - IRA critic on Thu, 2024-07-25 22:29
Not much he can do except perhaps convince his wife to sign a waiver after splitting his IRA into an account with her as beneficiary and another IRA to which she might sign the waiver allowing the custodian to accept his son as beneficiary on the account for which she signed the waiver.
Permalink Submitted by abraham boznick on Thu, 2024-07-25 23:27
upon my further investigation after I made the initial post. I was under the impression that in community state a wife is entitled only to 50% of the husband IRA upon his death. And then the husband can decide on who the beneficiary would be for the other 50%. However, for 401k the wife is entitled to 100%. Did I misunderstood this finding in regards to IRA?
Permalink Submitted by Alan - IRA critic on Fri, 2024-07-26 11:33
That is correct. 100% for ERISA plans (401k, 403b etc), but 50% for IRAs, so it is not clear why IRA custodians require a complete waiver. Another factor is how much of the IRA balance existed prior to marriage, as that portion would not be community property at marriage, but if contributions continue to the same IRA after marriage that would amount to commingling community property with separate property.
Permalink Submitted by abraham boznick on Fri, 2024-07-26 16:42
Thank you for your response. If the funds were transferred from husband 401k to husband IRA would those transferred funds would also fall under 50% rule in community state (Texas)? I understand that for example in case of bankruptcy the IRA funds which were transferred from 401k are treated differently from IRA funds which are not part of 401k transfer. Another question — you mentioned that custodians require a complete waiver — does it mean that the custodians will not allow 50% distribution to a person other than a spouse? If that the case how can husband proactively and successfully challenge this with custodian prior to his death?
Permalink Submitted by Alan - IRA critic on Fri, 2024-07-26 17:56
Texas provides complete creditor protection for IRAs (both in and out of BK) and even inherited IRAs, so basically the same as the ERISA protection while in the 401k. However, these protections would not prevent a spouse’s community property interest from being upheld.
Note that the community property provisions will vary slightly from state to state. I have no particular knowledge of Texas community property laws, but they might impact an IRA custodian’s decision whether to require a complete spousal waiver or just 50%.
I suggest that client consult a TX estates attorney in this situation.