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Anyone want an IRA?

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    Anyone want an IRA?

    One of my closest friends died in a car wreck recently and died intestate. I have been asking several "estate" related tax questions, and this one is a doozy. Bits and pieces of various things are turning up clear evidence that there was no estate planning whatsoever.

    Decendent divorced some 7-8 years ago and never remarried. At the time of divorce, he had listed his wife as beneficiary in the event of his death, and of course furnished her complete name, SS #, etc. His wife is now his EX-wife, and as such enjoys no survivorship rights. However, he never bothered to change the beneficiary and now the custodian of the IRA is wanting to either write a check to his ex-wife (only 55 years old), or continue to carry an IRA in her name.

    She never really wanted the IRA, and would just as soon pass the IRA on to the kids. Can she do so without triggering the 10% penalty, creating a taxable distribution for herself, or triggering a gift tax? Can she refuse the IRA, and defer the ownership to his estate?

    You guys (and gals) have been great thus far in answering questions. Thank you in advance.

    Regards, Ron Jordan

    #2
    No Penalty

    Ron, QF pg. 14-19 states that no penalty applies to distributions to a beneficiary. I was trying to find the exeption for period payment after age 55, but wasn't able to and I also realized it doesn't apply to your case.

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      #3
      There is no 10% penalty when you take a distribution from an inherited IRA. That would apply to the ex-wife, as well as any estate beneficiaries.

      If the ex-wife doesn’t want the IRA, she can disclaim it, in which case it would go to the estate. The estate would have to then take distributions of all the funds within 5 years (and distribute the funds to the estate beneficiaries), or else name a designated beneficiary of the IRA by September 30 of the year following the IRA participant’s death. In that case the designated beneficiary could leave the IRA in the decedent’s name and take distributions over his or her life expectancy. In any event, there is no 10% penalty on any distributions when they are made due to the death of the IRA participant.

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