About Disclaiming an IRA

Submitted by Edward W. Jew Jr. on Fri, 2015-03-13 00:16

The Setup:
George w.,age 74,has an IRA;RBD at age 701/2; died 1 Feb. 2015;RMD for 2015 not taken.
His wife,age 72,has her own IRA; RBD at age 701/2; she is his Primary Beneficiary.
His two children, ages in the mid 50s, are the Contingent Beneficiaries.
George’s wife feels that she dose not need all of his IRA and decides she should Disclaim part of it.

The Questions:
1-May the Primary Beneficiary Disclaim part of an IRA? Is the Disclaiming Process one that requires Disclaiming all of the assets of none of them?
2-Who withdraws the amount for George’s RMD?
3-By doing (2 would the Disclaimer be nullified?
4-Who pays the Income Tax due on the RMD amount-George’s Wife or his Estate?
5-What is the procedure for George’s Wife to actually accomplish the Disclaimer?
6-While George’s Wife has the Spousal Option to accept the Undisclaimed IRA assets
as her own, do the Disclaimed assets pass directly to the Contingent Beneficiaries?
7-Assuming the Contingent Beneficiaries, George’s two children, are to receive those
Disclaimed assets, what is the appropriate process by which they ought to share them?



Submitted by Alan - IRA critic on Fri, 2015-03-13 19:21

  1. A partial disclaimer is allowed
  2. It does not matter whether his wife takes the RMD or the contingent beneficiary takes it after the disclaimer.
  3. The IRS has ruled that completion of the decedent’s year of death RMD will not invalidate a disclaimer, but it may be best to delay it until after the disclaimer is completed due to technical requirements regarding earnings on the RMD amount. No point in risking failure of the disclaimer due to math challenges. The year of death RMD can be completed in any combination between the beneficiaries, but will be less risky if only one person completes it.
  4. The year of death RMD is reported by the recipient on recipient’s return. Never by the estate unless the estate is the beneficiary.
  5. Conditions are per Sec 2518 of the tax code. Disclaimer must be filed within 9 months of DOD with IRA custodian, and is best drafted by an attorney.
  6. Yes, disclaimed portion of the IRA will pass directly to the contingents upon acceptance of the disclaimer and they will be treated as designated beneficiaries. They should create separate inherited IRAs no later than 12/31/2016 in order to be able to use their individual life expectancies for RMDs. Spouse of this age would typically roll their share into their own IRA account.
  7. Best to create the separate inherited IRAs right after the disclaimer is complete. That includes naming their own successor beneficiaries. They could complete the year of death RMD after creation of the separate accounts and if done by 12/31/2015 there will be no need to file a Form 5329 to request a penalty waiver.
  8. Note that if decedent had any IRA basis from non deductible contributions, the remaining basis should be apportioned on a pro rate basis between spouse and children and they should each file their own 8606.

Submitted by John Peterson on Sat, 2015-03-14 14:04

With respect to the answer in paragraph 6 isn’t the deadline for creating the inherited IRAs if the benes want to use their individual life expectantcies 9/30/16?

Submitted by Alan - IRA critic on Sat, 2015-03-14 16:48

With respect to the answer in paragraph 6 isn’t the deadline for creating the inherited IRAs if the benes want to use their individual life expectantcies 9/30/16?

No, it is 12/31/2016. The 9/30 date is the deadline for either paying off a beneficiary or eliminating the beneficiary by disclaimer so that the beneficiary is not considered in determining the designated beneficiary for RMDs. For example, if disclaiming beneficiary is the oldest of 3, disclaiming by 9/30 will remove that beneficiary, but the remaining two still need to create separate accounts by 12/31 or they will have to use the life expectancy of the oldest of the two. I guess you could look at 9/30 as the deadline for total elimination of a beneficiary and 12/31 for separation determination of the RMD divisor for those still remaining.

Submitted by Edward W. Jew Jr. on Sat, 2015-03-14 00:54

To Alan-iracritic: Thank you for the update information regardng the subject.

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