Minor Beneficiaries Q and A

By Jeffery Levine, IRA Technical Expert  
Follow Me on Twitter: @IRAGuru4EdSlott

There are many questions and circumstances to discuss when dealing with minor beneficiaries. This question-and-answer session is aimed to fill in some of the blanks and start a discussion with your financial advisor based on a foundational depth of knowledge.

Question: Can I leave my IRA to a minor beneficiary?
Answer: Yes. There is no minimum or maximum age required to be an IRA beneficiary. In fact, an IRA beneficiary doesn’t even have to be a person. It could be a charity, trust or other entity, though the post-death distribution rules that apply are vastly different.

Question: Should I name a minor child directly or should I name a trust?
Answer: This is a personal decision and depends on a number of factors including the size of your IRA and how much post-death control you want to have over the account. If you only need to have minimal control over the inherited IRA until the beneficiary reaches the age of majority (18 or 21, depending on state law), you can name a UTMA/UGMA account as the beneficiary. If you want to exercise greater levels of post-death control or wish to have some control over the inherited IRA beyond the minor’s age of majority, a trust may be necessary. Using a trust as an IRA beneficiary can be complicated though, and should be discussed with your estate planning attorney, tax professional and financial advisor.

Question: Are there any tax advantages to naming a minor as the beneficiary of my IRA?
Answer: Yes, provided the inherited IRA custodian will allow “stretch” IRA distributions. Beneficiaries named on the beneficiary form and certain trust beneficiaries can stretch distributions from inherited IRA accounts over their life expectancies (stretch IRA). The younger the beneficiary, the longer their life expectancy and therefore, the smaller the annual required minimum distributions (RMDs) and longer the account can grow on a tax-favored basis.

Question: Can I name more than one child as the beneficiary of my IRA?
Answer: Yes, provided your IRA custodian accepts multiple beneficiaries. There is no minimum or maximum number of beneficiaries required under the law. In general, if you have more than one child as the beneficiary of your IRA, all your children must use the age of the oldest child to calculate RMDs. However, there’s an exception to this rule that would allow each of your children to use their own life expectancy to calculate RMDs provided they split the inherited IRA into separate inherited IRAs by December 31st of the year after they inherited the account.