Skip to main content

Nixon Peabody LLP

  • People
  • Capabilities
  • Insights
  • About
Trending Topics
    • People
    • Capabilities
    • Insights
    • About
    • Locations
    • Events
    • Careers
    • Alumni
    Practices

    View All

    • Affordable Housing
    • Community Development Finance
    • Corporate & Finance
    • Cybersecurity & Privacy
    • Entertainment & Media
    • Environmental
    • Franchising & Distribution
    • Government Investigations & White Collar Defense
    • Healthcare
    • Intellectual Property
    • International Services
    • Labor, Employment, and Benefits
    • Litigation
    • Private Wealth & Advisory
    • Project Finance
    • Public Finance
    • Real Estate
    • Regulatory & Government Relations
    Industries

    View All

    • Aviation
    • Cannabis
    • Consumer
    • Energy
    • Financial Services
    • Healthcare
    • Higher Education
    • Infrastructure
    • Manufacturing
    • Nonprofit Organizations
    • Real Estate
    • Sports & Stadiums
    • Technology
    Value-Added Services

    View All

    • Alternative Fee Arrangements

      Developing innovative pricing structures and alternative fee agreement models that deliver additional value for our clients.

    • Continuing Education

      Advancing professional knowledge and offering credits for attorneys, staff and other professionals.

    • Crisis Advisory

      Helping clients respond correctly when a crisis occurs.

    • DEI Strategic Services

      Providing our clients with legal, strategic, and practical advice to make transformational changes in their organizations.

    • eDiscovery

      Leveraging law and technology to deliver sound solutions.

    • Environmental, Social, and Governance (ESG)

      We help clients create positive return on investments in people, products, and the planet.

    • Global Services

      Delivering seamless service through partnerships across the globe.

    • Innovation

      Leveraging leading-edge technology to guide change and create seamless, collaborative experiences for clients and attorneys.

    • IPED

      Industry-leading conferences focused on affordable housing, tax credits, and more.

    • Legal Project Management

      Providing actionable information to support strategic decision-making.

    • Legally Green

      Teaming with clients to advance sustainable projects, mitigate the effects of climate change, and protect our planet.

    • Nixon Peabody Trust Company

      Offering a range of investment management and fiduciary services.

    • NP Capital Connector

      Bringing together companies and investors for tomorrow’s new deals.

    • NP Second Opinion

      Offering fresh insights on cases that are delayed, over budget, or off-target from the desired resolution.

    • NP Trial

      Courtroom-ready lawyers who can resolve disputes early on clients’ terms or prevail at trial before a judge or jury.

    • Social Impact

      Creating positive impact in our communities through increasing equity, access, and opportunity.

    • Women in Dealmaking

      We provide strategic counsel on complex corporate transactions and unite dynamic women in the dealmaking arena.

    1. Home
    2. Insights
    3. Articles
    4. Traditional IRA beneficiary designations and implications

      Articles

    Article

    Traditional IRA beneficiary designations and implications

    July 15, 2019

    LinkedInX (Twitter)EmailCopy URL
    There are advantages and disadvantages of naming certain beneficiaries on your Individual Retirement Account (“IRA”), with each option resulting in different tax implications. Knowing your options and consulting with your legal counsel can assist you in the process and can potentially save the beneficiary substantial amounts of money.
    The distribution of your Individual Retirement Account (“IRA”) assets upon your death depends on whom you have named as a beneficiary.

    For purposes of this blog entry, the discussion below assumes the IRA owner died after reaching age 70 ½.

    When a spouse is named beneficiary

    Naming one’s spouse as the beneficiary of an IRA provides many options and flexibility for the surviving spouse. A spouse is the only beneficiary who can choose to rollover the decedent’s IRA and treat the IRA as his or her own, which means the spouse can delay taking required minimum distributions (“RMDs”) until he or she reaches age 70 ½. The beneficiary spouse can also choose to establish an inherited IRA, which requires him or her to start taking RMDs in the year following the death of the IRA owner, but the RMDs are calculated according to the surviving spouse’s age/life expectancy. The surviving spouse can always take a lump-sum distribution, although this will cause the entirety of the distribution to be subject to income tax in the year in which such withdrawal occurs.

    When a non-spouse is named beneficiary

    A non-spouse beneficiary can either take a lump sum distribution or open an inherited IRA using his or her life expectancy, as determined by his or her age in the year following the year of death of the IRA owner. If multiple beneficiaries are named, they must establish separate inherited IRA accounts by December 31 of the year following the year of death of the IRA owner. If the beneficiaries fail to establish separate accounts by that deadline, distributions to all of the beneficiaries will be based on the oldest beneficiary’s life expectancy.

    When a charity is named beneficiary

    If you are charitably inclined, naming the charity as beneficiary of a retirement account is tax efficient for both the donor and the donee. The charity pays no income taxes upon receipt of the IRA assets, and the IRA will qualify for a full charitable deduction in the IRA owner’s estate.

    When a trust is named beneficiary

    If the trust qualifies as a “look-through” trust, then the RMDs must be paid to the trust over the life expectancy of the oldest trust beneficiary. A “look-through” trust (1) must be valid under state law, (2) must be irrevocable upon the death of the IRA owner, (3) the individual beneficiaries of the trust must be identifiable and (4) trust documentation must be provided to the IRA custodian no later than October 31 of the year following the year of the IRA owner’s death. If there are several trust beneficiaries of varying ages, then the ability to maximize the deferral potential of the distributions from the IRA could be lost. It is important to note that it may be possible to “split” beneficiary accounts if the trust creates separate “subtrusts” for each trust beneficiary. If the trust is not a “look-through” trust, then the time period to pay out the IRA is within five (5) years following the year of the IRA owner’s death.

    When an estate is named beneficiary

    Generally speaking, since an “estate” is not an individual, an IRA that names the owner’s estate must be paid out within five (5) years following the year of the IRA owner’s death.
    The foregoing has been prepared for the general information of clients and friends of the firm. It is not meant to provide legal advice with respect to any specific matter and should not be acted upon without professional counsel. If you have any questions or require any further information regarding these or other related matters, please contact your regular Nixon Peabody LLP representative. This material may be considered advertising under certain rules of professional conduct.

    Subscribe to stay informed of the latest legal news, alerts, and business trends.Subscribe

    • People
    • Capabilities
    • Insights
    • About
    • Locations
    • Events
    • Careers
    • Alumni
    • Cookie Preferences
    • Privacy Policy
    • Terms of Use
    • Accessibility Statement
    • Statement of Client Rights
    • Purchase Order Terms & Conditions
    • Nixon Peabody International LLC
    • PAL
    © 2025 Nixon Peabody. All rights reserved