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IRAs: Frequently Asked Questions

What Happens To The Money In An IRA If I Die?

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What happens depends on whether distributions have already started, and the identity of your beneficiary. If the rules are not followed, penalties will apply.

If distributions have already started when you die:

  • Your beneficiary is not your lawful spouse: In order to avoid penalties, any money still in the account must be distributed at least as rapidly as it would have had you not died. Your beneficiary cannot spread the distribution of the money out over a longer period of time than it would have taken you to deplete the account.
  • Your lawful spouse is the beneficiary: He or she will be permitted to treat the IRA as his or her own. Your spouse can continue to make contributions to the account, roll it over into an IRA of his/her own, or continue to receive distributions from the account at least as rapidly as was permitted under the system that was already started.
  • No beneficiary designated: The distribution period for your heirs will generally be your remaining statistical life expectancy at the end of the year after your death.

If distributions have not yet started when you die:

  • No beneficiary designated: All the money must be distributed within 5 years to whoever receives this money by means of your Will or your state's intestacy laws.
  • Someone other than a legal spouse is your beneficiary: Distribution of benefits must start by December 31st of the year after the year of your death. Benefits will be payable over the life expectancy of the beneficiary or a shorter period of the beneficiary's choosing.
  • Your spouse is the designated beneficiary: If your spouse is the beneficiary, he or she will have four options:
    1. Start distributions the year after the year of your death based on his of her life expectancy.
    2. Start distributions the year during which you would have reached 70.
    3. Spread payments over his or her own life expectancy.
    4. Rollover the account balance into the spouse's own IRA.

                                                                                                Edited by: Peg Downey, CFP, NAPFA
                                                                                                                   Money Plans
                                                                                                                   Silver Spring, MD
                                                                                                                   January 2008

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