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Settling Debts With an IRA

If a beneficiary is designated, the money in an IRA account passes directly to the beneficiary and does not become subject to the deceased's creditors.

My stepbrother died intestate, and as the appointed executor of his estate, I have to settle his debts. He has about $9,000 in his IRA and debts of $7,500. Can I use the IRA to pay the debts? --J.G., via e-mail

It depends on whether he designated a beneficiary for his IRA. If he did, the money in the account would pass directly to his beneficiary and wouldn’t go through probate or be subject to your stepbrother’s creditors after his death, regardless of whether he had a will.

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If there is no beneficiary, then the account would become part of the estate and could be used to pay its bills. As executor, you would need to liquidate the IRA and pay any taxes due on the withdrawal before using the remaining money to pay the debts. In situations in which there is no beneficiary and money is left in the account after the taxes are paid, the inheritor is determined by state law. Work with an estate-planning attorney to find out about any special rules that may apply in your stepbrother’s state.

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