Rules for an IRA Beneficiary Change in Marriage

by Wilhelm Schnotz

You finally tied the knot and made it official: You’re married. While marriage confers many property rights onto your spouse as a matter of legal definition, newlyweds still face several loose ends when managing their finances. One of those matters is addressing the beneficiaries of any retirement accounts, such as IRAs, that you may hold: Although you’re now the proud husband of a wife, should you die without renaming her as the beneficiary on your IRA, your niece may still inherit a chunk of your retirement.

Inheriting IRAs

If you haven’t named a beneficiary for your IRA and you die, the Internal Revenue Service (IRS) passes it into your estate. For married couples, the surviving spouse inherits the estate, and may receive distributions more or less as if you were still alive. If you named another member of your family or another party, such as a trust or charity, it passes directly to that party, bypassing your estate during probate. Your spouse will have little, if any, legal claim to the funds if she hasn’t been renamed as its beneficiary upon your death.

Rules on Naming Beneficiaries

The IRS leaves the regulations of naming beneficiaries largely up to the brokerages and banks that administer your IRA. Although you’re legally allowed to change your beneficiary at any point, some banks may require you to submit a notarized form naming the new beneficiary. Other institutions merely require investors to submit a form listing the new beneficiaries of the plan. Most plans allow you to name a primary beneficiary and contingency beneficiaries -- parties who inherit your IRA if your primary beneficiary is dead -- in addition to your spouse.

Distributions on Inherited IRAs

No matter whom you name as your beneficiary, if you die before exhausting the assets in your IRA and you name your spouse as beneficiary, he may elect to treat the IRA as his own, receiving contributions as regularly scheduled for an IRA, or roll it over into his existing IRA, or treat the IRA as if he inherited as a non-spousal beneficiary. A beneficiary who isn’t a spouse must begin receiving minimum distributions from the inherited IRA based on IRS actuarial tables that estimate the beneficiary’s expected lifespan. Assets in the IRA remain tax sheltered, although a beneficiary must pay normal income taxes on each distribution he receives.

Choosing a Beneficiary

Some investors choose not to name their spouse as a beneficiary for their IRAs, and instead name their children. This assures your children will receive your inheritance should you become divorced and die before renaming someone other than your ex-spouse as the beneficiary. Additionally, because your children will outlive your spouse by decades, the required minimum distribution they’ll need to receive from your inherited IRA will be much smaller, allowing a larger amount to remain in the IRA and grow on a tax-deferred basis.

About the Author

Wilhelm Schnotz has worked as a freelance writer since 1998, covering arts and entertainment, culture and financial stories for a variety of consumer publications. His work has appeared in dozens of print titles, including "TV Guide" and "The Dallas Observer." Schnotz holds a Bachelor of Arts in journalism from Colorado State University.

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