Disclaiming All or Part of an Inherited IRA or Retirement Plan

If you are a beneficiary of a traditional IRA or employer-sponsored retirement plan account, and the account owner dies, you generally have several options. In most cases, one of your options is to disclaim the inherited funds. When you disclaim all or part of a traditional IRA or retirement plan account, you voluntarily refuse to accept some or all of the inherited funds.

Why would someone disclaim?

As you might guess, disclaiming is not common. Most beneficiaries opt to receive the inherited IRA or employer-sponsored plan funds in one form or another. However, disclaiming a benefit may actually make sense in certain circumstances. For example, you may decide to disclaim so that the funds pass directly to a contingent beneficiary with greater financial need. Or, you may want to disclaim in order to minimize your taxable income or for estate planning purposes. IRA and retirement plan distributions are generally treated as taxable income for federal (and possibly state) income tax purposes and can be subject to estate tax, too. Or you may want to disclaim to allow the IRA or retirement plan account to pass to a younger contingent beneficiary who can stretch out distributions over a longer period of time.

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