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Choosing a Beneficiary for Your IRA

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One of the very important tenets of estate planning is to ensure that you’ve made an appropriate choice, or set of choices, for beneficiary(s) of your IRA account(s).  The title of this article could be a bit misleading – the point of this article is to list some of the consequences of various choices for a beneficiary of your IRA.

Don’t get me wrong – this article doesn’t suggest that the tax consequences should drive your choice of beneficiary(s).  Rather, the assumption here is that you have several beneficiaries to choose from, and other classes of assets that you can direct toward heirs that aren’t as able as others to take advantage of the tax-favorable provisions.

Following are the benefits and consequences of some of the major groupings of choices that you might make for beneficiary(s) of your IRA.


Younger Individual

Now that the rules have changed (with the SECURE Act), a younger individual as a beneficiary may make sense in some cases, but not all.

If the younger individual is your own child, and is under the age of majority, choosing this individual as a beneficiary can allow for a longer payout period than other choices. Since the child is under the age of majority, this makes him or her an Eligible Designated Beneficiary. With that designation, the minor child can stretch out inherited IRA distributions. The period of time over which the child can stretch these distributions is based on his or her age when the IRA is inherited.

From the age of inheritance up to the age of majority (18 in most states, 21 in some others), the heir-beneficiary must take annual distributions from the IRA based on his or her age, using IRS Table I. Once the child reaches the age of majority, the ten-year payout rule becomes effective, meaning that the remaining IRA must be distributed within ten years – but there is no annual minimum withdrawal requirement.

On the other hand, if the younger individual is not the child of the original IRA owner, the ten-year rule applies, unless the heir-beneficiary is 1) disabled or  2) chronically ill (a third option follows below). These are two of the other Eligible Designated Beneficiaries, who are allowed to stretch out inherited IRA withdrawals over their lifetimes, with an annual withdrawal required each year.

Older Individual

If you choose an older individual as the beneficiary of your IRA, this heir can also take advantage of the life expectancy payout method – if the individual is within 10 years of your age, or is older than you. This Eligible Designated Beneficiary may stretch out inherited IRA withdrawals over his or her lifetime as well.

If the individual you’ve chosen is more than 10 years younger, the ten-year withdrawal rules apply, and the withdrawal activities can’t be stretched past that time limit without severe penalty.

Spouse (any age)


If you leave your IRA directly to your spouse by name, he or she can elect to treat the inherited IRA as his or her own IRA.  This means that your spouse will be able to defer distributions from the account until he or she reaches age 72, and then use the Uniform Life Table for distributions.  As you may know, the ULT is much more favorable than the Single Lifetime Table, which is the one required to be used by owners of inherited IRAs not otherwise required to use the ten-year payout.  Your spouse can also name his or her own beneficiary for any amounts remaining in the IRA at his or her death – which provides for additional deferral in the account.

In Trust

If instead, you decide to leave your IRA to your spouse via a trust (even a look-through trust), you remove the possibility for your spouse to assume ownership of the IRA (as described above).  By doing so, the account must be treated as an inherited IRA, subject to the immediate Required Minimum Distributions from the account, regardless of the age of your spouse.  Further deferral of taxes is limited in many cases, since if the spouse is younger than 72 he or she has to take distributions now rather than delaying until age 72.  In addition, your spouse will be required to use the less-favorable Single Lifetime Table for the distributions; your spouse also cannot name his or her own beneficiary for the account for further deferral after his or her death.

Now, if the spouse is the sole beneficiary of the trust, the account can be treated as if it were directly inherited by your spouse, as in effect the look-through trust becomes a conduit trust.  With a conduit trust, the effect is the same as specifically naming your spouse the sole beneficiary of the account – so the same rules apply as when you leave the account directly to your spouse.  The only difference is that you’ve spent extra money drafting the trust agreement.

Other Beneficiary Options

Group (versus Individual)

Leaving your IRA to a group of people instead of one person can introduce quite a bit of complexity to the situation.  Where possible you might split your IRA into separate accounts and direct each account to an individual beneficiary, saving your heirs a lot of extra headaches at your passing.  If this is not possible or you would prefer not to split your account your heirs can do it later – it’s just a lot of extra paperwork for them that you could have handled for them in advance.  See this article for additional information on splitting inherited IRAs.

In addition to the paperwork, your heirs might run into problems if there is a mix of Eligible Designated Beneficiaries and regular eligible beneficiaries. Even more complex would be if there is a non-designated beneficiary in the mix as well. Suffice it to say that it’s much easier if you split up your IRA and leave separated accounts to the various classes of beneficiary if the need arises.


As tax-exempt entities, charities do not have to pay tax on any donations.  So if you choose to name a charity as beneficiary of your IRA, there are no tax consequences on an asset that would otherwise be fully subject to ordinary income tax.  This can be a very tax efficient way to provide charitable bequests – leaving your more tax-favorable assets to non-charity recipients.

Your Estate

If you choose to leave your IRA assets to your estate – either intentionally by naming your estate as beneficiary, or unintentionally by not naming a beneficiary or by naming a non-look-through trust as your beneficiary – longer-term tax deferral benefits are lost. Estates and non-look-through trusts have no life expectancy, therefore there is no life expectancy payout option.  This is not to say that there are no good reasons to choose your estate as beneficiary of your IRA – but that’s a topic for another post…

Bottom Line

As I mentioned before, you should not cause the tax code to be the determining factor when choosing a beneficiary.  You should leave your assets to whomever you wish.  You can, however, use the information on this page to help guide your process of choosing a beneficiary, making tax-efficient choices.  Making thoughtful decisions about this process can ease the tax burden for your heirs.


  1. Zvi Kedem says:

    ” With a conduit trust, the effect is the same as specifically naming your spouse the sole beneficiary of the account – so the same rules apply as when you leave the account directly to your spouse..” If the same rules apply, then the spouse beneficiary could make the account his/her own. Right?

    1. jblankenship says:

      Yes, that’s correct.

  2. IRA Rules says:

    Hello fellow blogger! I’m new to blogs but I just wanted to say that I like your blog here on Ira Age Rules. It kept me reading all the way to the end… And then I went and searched for some more posts after that. :) Keep up the good work, I’m always looking to learn more about IRA Rules, in particular.

  3. IRA Rules says:

    […] Choosing a Beneficiary for Your IRA – Getting Your Financial Ducks In A Row | IRA Rules – Ira Age Rules[…]

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