Disclaim inherited qualified IRA annuity to the Estate

Submitted by helen roland on Wed, 2020-10-28 12:08

I plan to disclaim an Inherited IRA qualified annuity to the estate so the one heir in will (deceased significant other) will receive. I am being told this would be a gift tax event $15,000 ? Jackson said I could disclaim but does not know the tax implications. I know there is 10% Md estate tax since he is only a significant other of the deceased.
What are the tax implications in disclaiming to estate and cashed in the annuity?
Tax implications if he kept for 10-year deferral payout?



Submitted by Alan - IRA critic on Wed, 2020-10-28 18:02

  • A qualified disclaimer does not generate a gift tax for the disclaimant (transferor), not does it generate any income tax for the disclaimant. Be sure you have not accepted any portion of the annuity or you cannot make a qualified disclaimer, and the disclaimer must be filed within 9 months of the DOD. 
  • The estate may be forced to take a lump sum distribution by Jackson, even though IRS rules allow the estate a limited stretch. Any distribution to the estate can be passed through the estate to the SO on Form K 1 and the SO will have to report the distribution(s) on their individual return and pay the income tax. This post does not address state estate or inheritance tax issues. 
  • Since the estate of decedent will inherit the IRA following the disclaimer, the applicable distribution period for the IRA will either be the 5 year rule if decedent passed prior to the RBD, or the remaining single life expectancy of the decedent is they passed on or after the RBD. The 10 year rule does not apply, and the Secure Act did not change the RMD rules for estates.

Submitted by David Mertz on Wed, 2020-10-28 20:04

If you do not disclaim, distributions from the IRA will be your income, taxable to you (unless you die and the successor beneficiary that you designate inherits what remains).  What *would* be a gift is if you simply give an amount (that you receive from the IRA or any other source) to the decedent’s significant other.  As a designated beneficiary who is an individual, you would be subject to the 10-year rule if you are not an Eligible Designated Beneficiary, otherwise you would be subject to RMDs based on your life expectancy.  Sometimes keeping the IRA and simply gifting amounts annually is a better alternative than disclaiming, usually allowing a longer stretch then would be possible under the 5-year rule and avoiding complications of IRA custodians who are reluctant to allow the transfer of the IRA from the estate to the heir (and, in the case of MD, avoiding the inheritance tax if you would not be subject to that tax, but keep in mind that inheritance taxes paid reduce MD estate tax if the estate is large enough to be subject to estate tax).

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