Renunciation by designated beneficiary
If a designated beneficiary renounces his interest in a Roth IRA upon the death of the owner and if the designation provides for an alternate beneficiary who would take “in the event [the first designated beneficiary] predeceases me…] does the interest of the first ben. go to the alternate ben.? Can a ben. renounce only part of the interest and take the remainder? Does the renouncing ben make a gift to the alternate ben? If the altenate ben can take through the ben des provision, can he also use his age to compute RMDs or does the age of the original ben have to be considered?
My concern is that the provision for the account to go to the alternate is contingent upon the first ben predeceasing the owner but in this case he has not predeceased. He has only renounced. I would want the designation to operate to allow the first ben to renounce, avoid a gift issue and be certain that the renounced portion would go to the alternate and that the alternate’s age be used for RMD computation. I want to keep the interest from falling into the intestate portion of the estate.
Thanks for the help.
Permalink Submitted by Alan Spross on Wed, 2010-11-17 02:06
The designated beneficiary can execute a qualified disclaimer under Sec 2518 of the IRS Code. This must be completed within 9 months of death unless the beneficiary is a minor. Upon completion, the contingent beneficiary on the IRA is placed in the exact same position as if they were the original primary beneficiary. The disclaimer can be full or partial and if partial, each beneficiary is treated as if they were primary beneficiaries for their respective shares.
Interests received through disclaimer are NOT considered taxable gifts from the first beneficiary, but rather direct inherited interests from the decedent. Therefore, gift taxes do not apply.
The beneficiary receiving disclaimed IRA assets can use their own life expectancy for RMD determination, but if the disclaimer is partial then separate accounts need to be created by 12/31 of the year following the year of death or the age of the oldest beneficiary applies to both of them for RMD calculation.
It appears that the correct execution of the disclaimer will result in satisfying all your concerns about the process. Note that you cannot disclaim to yourself unless you are a surviving spouse. In other words, if there was NO contingent beneficiary and the disclaimed funds went to the estate, a non spouse disclaimant could not inherit through the estate as that would be a violation of Sec 2518.