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Not surprisingly, that can cause a problem if someone dies late in the year.“If your father dies on Christmas Day and still hasn’t taken out the distribution, you may not even find out that you own the account until it’s already too late to take out that year’s distribution,” she says.The last day of the year is the deadline for taking that year’s RMD.If the deceased was not yet age 70 1/2, or if it’s a Roth IRA, then there is no year-of-death required distribution.It is possible to list a trust as a primary beneficiary of an IRA.It is also possible that this will go horribly wrong.One slip-up by the beneficiary, or even by the benefactor before death, and that tax gem can be lost forever.
Nonspouse beneficiaries have two options for liquidating the account: The stretch IRA is the tax equivalent of the treasure at the end of the rainbow.
“It’s not necessary that you were the person who paid the taxes; just that someone did,” she says.
For 2017, estates worth more than .49 million are subject to the estate tax, up from .45 million in 2016.
If you were not interested in taking money out at this time, you could let that money continue to grow in the IRA until you reach age 70 1/2,” says Frank St. If the spouse inherits a Roth IRA, no distributions will be required ever.
But there’s an additional wrinkle in that, if the spouse elects to treat the account as his or her own, any distributions taken before age 59 1/2 could be subject to the 10 percent early withdrawal penalty. In order to choose the stretch option, a beneficiary must take yearly required minimum distributions, or RMDs, based on his or her own life expectancy.