FAQs About Passing an IRA to Your Heirs

Naming Your Own Estate as an IRA Beneficiary

• Can an IRA owner name a specific person as primary beneficiary but name his estate as the secondary beneficiary?

That is possible—but any heirs who might receive the IRA money through the estate will lose the opportunity to stretch the account. Assuming the estate is going to be passed to individuals anyway, an IRA owner may as well just name those people as contingent beneficiaries on the IRA so they retain the option to stretch the inherited IRA over their own lifetimes.

Naming a Trust as an IRA Beneficiary

• I've considered naming a trust as an IRA beneficiary, but in that case, can the IRA distributions still be stretched?

It depends on the type of trust named. Some trusts are considered nonperson beneficiaries, making it impossible to stretch the IRA. But if the trust is written as a "see-through trust," then the trust beneficiary will be treated as if he or she were the IRA's direct beneficiary and can stretch the IRA distributions over his or her own life expectancy. Consult an estate-planning lawyer if you choose to go the trust route.

Naming Children as IRA Beneficiaries

• If I want my children to inherit my IRA after my wife, how do I fill out the beneficiary form?

A spouse who inherits an IRA controls what happens to the money next, because she will either take the inherited IRA as her own account or remain a beneficiary of the inherited IRA and name successor beneficiaries. Either way, her chosen beneficiaries are next in line for the money.

Let's say both spouses wish for their IRAs to pass to the surviving spouse and then to the children. Each spouse can name the other as primary beneficiary and the children as contingent beneficiaries on his or her IRA accounts.

If the surviving spouse doesn't change the beneficiary form on his or her IRA before passing away and the deceased spouse is still listed as the primary beneficiary, the money goes to the contingent beneficiaries (in this case, the children).

Splitting IRA Assets Among Heirs

• How are the IRA assets split and distributed to the heirs?

The beneficiary form asks you to designate a percentage for each named beneficiary. If you fail to put down percentages, typically the custodian will split the assets equally among the named beneficiaries. The assets will usually be transferred in-kind to the heirs' inherited IRAs, though beneficiaries could request that the assets be liquidated first. If two beneficiaries are named as heirs to an IRA holding 100 shares of stock with a 50%/50% designation, 50 shares would transfer in-kind to each beneficiary's inherited IRA, says certified financial planner Ajay Kaisth.

Figuring Out the Final RMD

• Does the executor of the estate take the deceased owner's final RMD from the IRA? And does the final RMD go to the estate or to the IRA beneficiaries?

It's a common mistake to think the executor is the one to take the final RMD, says Jeffrey Levine, senior wealth manager at BluePrint Wealth Alliance. The executor would be responsible for taking the RMD only if the estate was the IRA beneficiary, but ideally people are named as the beneficiaries. With designated beneficiaries, once the IRA owner dies, all the assets in the IRA belong to the people named as beneficiaries, and that includes an RMD that wasn't taken by the owner before his death. The beneficiaries should take the RMD, and the money belongs to them.