When setting up an IRA, the account holder will be able to choose an IRA beneficiary. This individual will be next in line to receive the funds in the account if the primary account holder passes away. If the IRA beneficiary is a spouse of the deceased individual, he or she will have some options when it comes to dealing with the money. Non-spouse beneficiaries will have to start taking distributions from the account.
An IRA is a popular type of retirement account that is available in the United States. This term stands for individual retirement account. Individuals who wish to set up this type of account can save money on a pre-tax basis, and then invest it into the financial markets. When an individual sets up an IRA account, he or she will have to designate an IRA beneficiary. This could be anyone, although a special waiver may have to be signed if the account holder chooses someone besides his or her spouse.
In cases where the account holder dies while there is still money in the account, the money will go to the IRA beneficiary. If the IRA beneficiary is a spouse, he or she will have two choices when dealing with the money. One choice is to start taking withdrawals of the money in the account. The other option for the spouse is to roll the money into his or her own IRA. If the individual is young and is not ready to retire, he or she could add the funds to money in his or her own IRA and continue to let it grow.
If the beneficiary is not a spouse, he or she will have to start taking distributions from the account. How and when the distributions must be taken will depend on the status of the IRA when the original account holder passed away. For example, if the original account holder was already taking money out of the IRA during retirement, the beneficiary will have to step in and start taking regular payments from the IRA right away.
When the original account holder was not taking distributions when he or she died, the beneficiary will have a little bit of flexibility when it comes to dealing with distributions. The beneficiary can choose when to start taking distributions as long as the money is taken out of the IRA account within the next five years. When the beneficiary takes distributions, the money will be treated as income, and he or she will have to pay income taxes on it.