Elder Law Resources: What are the Rules on Retirement Account Inheritance?
For many people and families in Florida, a retirement account is amongst their most valuable assets. A spouse, child, grandchild, or other loved one can inherit your tax-advantaged retirement account. Though, there are specialized rules and regulations that apply. Within this article, our St. Petersburg elder law attorney provides an overview of the key things to know about the rules of retirement accounts for inheritance purposes in Florida.
Starting Point: Retirement Accounts Pass by Beneficiary Designation, Not Probate
With few exceptions in Florida, a retirement account does not transfer through a will in the ordinary course. Instead, the controlling document is the beneficiary designation maintained by the plan administrator or IRA custodian. When the account owner dies, the financial institution distributes the account according to the designated beneficiary on file. In other words, retirement accounts often pass outside of the probate estate entirely. With that being said, if no valid beneficiary designation exists, the account may become payable to the estate and probate may be required.
Most Non-Spouse Beneficiaries Must Follow the Ten-Year Distribution Rule
As explained by the Internal Revenue Service (IRS), non-spouse beneficiaries generally face stricter withdrawal requirements. Due to relatively recent federal reforms, the law now requires most non-spouse beneficiaries to withdraw the entire balance of an inherited retirement account within ten years of the original owner’s death. A bill recently changed the rules for so-called “stretch IRAs.” Under the current framework, beneficiaries may take withdrawals periodically during the ten-year period or delay distributions until later within that timeframe. Regardless of the strategy chosen, the account must be fully distributed by the end of the tenth year.
Note: Federal law recognizes a limited group of “eligible designated beneficiaries” who may distribute inherited retirement accounts over a longer period based on life expectancy besides spouses. They include minor children of the account owner, individuals who are disabled or chronically ill, and beneficiaries who are not more than ten years younger than the deceased.
Special Rules Apply When a Spouse Inherits a Retirement Account
A surviving spouse receives the most flexible treatment under federal retirement account law. In most cases, the spouse may elect to treat the inherited account as their own retirement account. The option allows the spouse to roll the inherited assets into their own IRA or maintain the account under their name. By doing so, the spouse may delay required minimum distributions until reaching the applicable federal age threshold.
Why Keep Proceeds in an IRA for Longer? The primary purpose of delaying distributions is that it can allow the funds with the retirement account to grow on a tax-advantaged basis for longer.
Call Our St. Petersburg Elder Law Attorney Today
At Fisher & Wilsey, P.A., our St. Petersburg elder lawyer is a compassionate, experienced, and solutions-focused advocate for clients. If you have any questions or concerns about the rules of retirement account for inheritance, we are here as a legal resource. Contact us right away to arrange your strictly confidential, no obligation initial consultation. We have an office in St. Petersburg and we provide elder law services throughout Pinellas County.
Source:
irs.gov/retirement-plans/plan-participant-employee/retirement-topics-benefi
