Inherited IRA Issues in North Carolina
Federal and state laws and regulations impact how tax applies to inherited retirement accounts. Inherited IRAs (Individual Retirement Accounts) face differing regulation based on whether the beneficiary is a spouse or a non-spouse. Marital status also influences how North Carolina’s intestate succession law applies to an estate, which may pertain to retirement accounts if the account owner failed to complete beneficiary designations. (Up-to-date beneficiary designations on retirement accounts allow for the assets to pass immediately to the named individual with no requirement for the assets to pass through probate.)
FINRA (the Financial Industry Regulatory Authority) released an Investor Alert early this year advising IRA beneficiaries to review inherited IRA tax implications
with the Internal Revenue Service (IRS). Several of the issues addressed in the alert include confusion over administration of Required Minimum Distributions (RMDs) and IRA spousal rollovers.
The timing and amount of RMDs depend upon multiple factors, including the retirement account balance, the beneficiary’s age, the age of the decedent (account owner) upon death, and more. IRA custodians
have no responsibility to notify beneficiaries about the proper timing and amounts of RMDs, which means beneficiaries must do their due diligence in seeking appropriate tax advisement. Failing to do so could result in excessive penalties. Our tax attorneys explain what to do after a missed RMD
If the beneficiary was the spouse of the IRA owner, the surviving spouse has the right to elect a spousal rollover. When properly managed, an IRA spousal rollover allows the surviving spouse to treat the inherited account as their own. However, the spouse has other options, including treating the IRA as an inherited account. Learn more about a spouse’s IRA distribution advantages
Inheriting an IRA through North Carolina probate, the process required when beneficiary designations were incomplete or the named beneficiary predeceased the account owner, is a lengthy process. Assets will be divided and transferred to next of kin, which may include individuals that the account owner did not intend to receive the assets.
Executors inventorying and overseeing the transfer of retirement funds that are part of the probate process may have questions. Contact a North Carolina estate lawyer
to review the decedent’s assets and options.