IRA beneficiary designations
ARTICLE TAKEAWAYS
- Understanding the types of IRA beneficiary designations
- Default beneficiary provision and inherited IRAs
Types of IRA beneficiary designations
Primary beneficiary:
The primary beneficiary inherits the IRA after the IRA owner passes away.
Contingent beneficiary:
If the primary beneficiary passes away before the owner or disclaims the IRA, the contingent beneficiary inherits the IRA after the IRA owner's death.
Subsequent beneficiary:
The subsequent beneficiary inherits the IRA after the primary or contingent beneficiary passes away.
Default beneficiary provision
If an account owner of a Capital Bank and Trust Company IRA does not designate a beneficiary, or all named beneficiaries pass away or disclaim before the account owner, then the following default provision applies:
- The account owner’s spouse is the beneficiary or, if none, the owner’s children, equally
- If an account owner’s child predeceases the owner, then that child’s share is distributed to their own children (the owner’s grandchildren) equally or, if none, the surviving children equally
- If none of the above survives the account owner, the beneficiary is the owner’s estate
Inherited IRAs
If your client is the owner of an inherited IRA, the default provision doesn’t apply. If your client doesn’t designate a subsequent beneficiary or all named subsequent beneficiaries pass away before your client, the beneficiary is your client’s estate. However, subsequent beneficiaries may not designate another subsequent beneficiary. If your client is a subsequent beneficiary and passes away before depleting the inherited IRA, the beneficiary is your client’s estate.
Note: Your clients may want to consult a tax advisor or estate planner when making or changing beneficiary designations.
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