Beneficiary Ira Designation Form: Fill & Download for Free

If the deceased has named their estate as the beneficiary of their 401(k) and has corresponding instructions in their last will and testament as to whom should receive the 401(k) plan proceeds, the executor should notify the 401(k) plan administrator that a trustee to trustee transfer will be made to the the trustee that the beneficiary named in the last will testament selects. The executor should avoid receiving the funds in the estate account since it will not be eligible for a IRA rollover unless the named heir is the deceased's spouse. The plan funds must be transferred from the 401k plan administrator via a “trustee to trustee transfer” to defer taxation on the funds. If the estate 401k plan beneficiary is not concerned about income tax consequences on the funds, then the funds can be disbursed to the estate and then to the beneficiary or directly to the beneficiary from the 401(k) plan.When a qualified plan participant dies without naming a beneficiary, or they have named their estate as beneficiary, the executor of their estate must use caution to prevent full taxation while maneuvering these funds through the estate settlement process. This document will provide guidance to the executor for reducing income tax consequences to the estate and heirs. Definitions are provided for italicized terms.A Worst Case ScenarioIf the executor requests that qualified funds be disbursed to the deceased’s estate, the estate is 100% taxed on the taxable portion of the distribution. (Neither After-tax contributions nor Roth IRA funds are taxable upon distribution.)Taxable qualified retirement distributions made after death are considered “Income in Respect of Decedent “ hereinafter called (IRD) and is taxable to the recipient as such. Code Sec. 408(d) and Code Sec. 72 (Rev. Rul. 92-47, 1992-1 CB 198). If the estate receives IRD, in this case in the form of IRA proceeds, and distributes the IRA proceeds to the heirs, it can claim a tax deduction for the amount of the distribution. (See instructions for Schedule B Form 1041). Reporting income to the heirs is performed by issuing a K-1.As a quick side bar, the estate can also take an income tax deduction for administrations expenses, if the executor files a statement waiving the right to deduct administration expenses on the Estate Tax Return, Form 706. An executor will file this statement on the estate income tax return, Form 1041. An executor is required to file Form 706 when the estate is valued in excess of $5.4 million.You should also know, that an income tax deduction cannot be taken for funeral, medical and dental expenses.Since estate income tax brackets escalate faster than personal tax brackets, IRC distributions to heirs normally results in lower taxation of the funds. Also, if an estate has multiple heirs, resulting in the IRC being distributed to a number of recipients, the taxable income is spread out among those heirs.Example:Okay, so now if the deceased plan participant had one million dollars in his qualified retirement plan, we have one million dollars of taxable income that is either taxable to the estate or taxable to the heirs receiving the funds. So, somebody is thinking, “Why don’t the heirs just roll over these funds into a Beneficiary IRA? The answer is painful.The only heir that is eligible for an IRA Rollover is the deceased’s spouse. A non-spouse is prohibited from rolling over qualified retirement funds (PLR 2005-13032). This means that if a non-spouse receives a check from the estate, or, for that matter, receives a check directly from the plan administrator or plan custodian, they will be taxed on the distribution in the year paid without remedy. To put it plainly, you cannot set up a beneficiary IRA with a check from the estate, nor can you set up a beneficiary IRA with a personal check. A beneficiary IRA must be expedited as a Trustee-to-Trustee transfer from one qualified plan custodian directly to another plan custodian. Code Section 408(d)(3)(C). If a beneficiary IRA is set up any other way besides a Trustee-to-Trustee transfer or re-titling it at the original custodian, it is a rollover which is prohibited by tax law unless you are the spouse of the deceased.Just one more point on this matter. If you manage to set up a beneficiary IRA with a personal check because a financial institution, such as an insurance company takes your check along with an application for an annuity designated as a beneficiary IRA, tax law is clear that the beneficiary IRA will not be recognized as such by the Internal Revenue Service. If this happens, here are my concerns:1. You, your agent or financial advisor believe that the funds have been successfully placed in a Beneficiary IRA just because the annuity application and the issued annuity clearly states it is a beneficiary IRA.2. Consequently, you believe that you have avoided the taxation on these funds until later distribution, when, in fact, they are fully taxable in the year these funds were disbursed to you.3. You also mistakenly believe that you can receive distributions from the beneficiary IRA over the course of five years, your life expectancy, or the deceased’s life expectancy. In fact, since these funds are not recognizedas a beneficiary IRA by the IRS, you have indeed purchased a non-qualified annuity, that is subject to 10% non-deductible tax penalties on all interest that is paid to you under the age of 59 ½.4. Also, when the IRS sends you a letter requesting a past due tax payment on the initial distribution from the estate or the IRA custodian, you will likely be subject to substantial surrender charges for premature surrender of the annuity.The consequences are:1. You will pay the back taxes that were due for the year of disbursement on the qualified plan distribution.2. You will pay penalties and interest for underpayment of income taxes.3. If you must withdraw funds from the non-qualified annuity that you thought was a beneficiary IRA, and if you are under the age of 59 ½, you will be accessed a 10% penalty; plus, payment annuity surrender charges that could be high enough to cause you a nervous breakdown.Can this Tax Tragedy be Avoided with Tax Strategy?The short answer is, “Maybe.” To successfully postpone taxation on qualified funds that have no beneficiary, the executor should make a request to the deceased’s qualified plan custodian to continue to hold the funds until further notice. Be aware that a company qualified plan custodian will have guidelines that may restrict them from honoring a request.The plan custodian may also have restrictions as to the disbursement of qualified funds when there is no named beneficiary or when the estate is beneficiary. If a beneficiary has not been named, you will want to ask if they have a default beneficiary. If so, you may have options that allow you to stretch the taxation of the IRA over many years using qualified disclaimers, etc.Once the executor has decided it is time to make distributions of the qualified retirement funds, he/she should consult with the deceased’s qualified administrator / custodian to ask their procedure for the disbursement of the funds. In all likelihood, the executor will need to consult with the heirs who are to receive the qualified funds as to whom they prefer to have as their Beneficiary IRA custodian. It, of course, may be a bank, a brokerage firm, an insurance company or another financial institution. In any event, these firms will have Beneficiary IRA trustee-to trustee transfer forms that should be completed. The estate’s personal representative should then send the trustee-to-trustee forms to the deceased qualified plan administrator with written instructions as to the percentage or amounts that should be disbursed to the beneficiary IRA’s custodian. By using this method of disbursement, the executor has assured that the funds remain in a qualified plan and the non-spouse beneficiary will not be taxed on the funds until they are disbursed to him/her from their beneficiary IRA.As stated earlier, the deceased’s plan custodian will have plan provisions that dictate their disbursement criteria. So they may require that a deceased plan participant’s estate receive funds when no beneficiary is named or when the estate is the beneficiary. If so, the estate, if allowed, should have the qualified retirement funds of the deceased, trustee to trustee transferred to an IRA that is titled after this example or something similar to it, “Alice Doe f/b/o Estate of Joe Smith,” or “Alice Doe, Executor of the estate of Joe Smith, as beneficiary of Joe Smith.” To postpone taxation, the funds should stay in this account until the estate’s personal representative is ready to process a trustee-to-trustee transfer to an heir’s beneficiary IRA custodian.When there is no beneficiary and the executor has successfully helped an heir or heirs of the estate set up a beneficiary IRA by having the deceased qualified plan administrator execute a trustee-to-trustee transfer to the beneficiary IRA custodian, the beneficiary then must use the 5-Year Rule for taking distributions from the beneficiary IRA . The beneficiary is not a “Designated Beneficiary” if he or she was not named as a beneficiary by the deceased; consequently, the beneficiary is not entitled to take distributions over the course of his /her life expectancy or the deceased’s IRA holder’s life expectancy.The 5-Year Rule applies when the IRA holder dies before age 70 1/2 and the IRA holder has no designated beneficiaries at the time of death. The minimum required distribution for a beneficiary IRA under the 5-Year Rule is: “All benefits must be distributed no later than December 31, of the year that contains the fifth anniversary of the participant’s death. Reg. § 1.401(a)(9)-3, A-2.Consequently, by using trustee-to trustee transfers of qualified retirement accounts from the deceased qualified plan’s custodian to the estate beneficiary IRA custodian or to preferred beneficiary IRA custodians, the holder of the beneficiary IRA has five tax years to liquidate the IRA rather than experiencing full taxation on the funds in the year received.Titling the Beneficiary IRAA title example of an individual beneficiary IRA is, “Joe Smith, deceased, f/b/o Jane Doe.”A title example of an IRA that is payable to the deceased qualified plan participant’s estate is, “Alice Doe, f/b/o Estate of Joe Smith,” or “, Alice Doe, Executor of the estate of Joe Smith as beneficiary of Joe Smith.”A title example for a Trust that is beneficiary is, “Joe Smith, f/b/o Joe Smith Testamentary Trust,” or Alice Doe of the Joe Smith Revocable Trust, as beneficiary of Joe Smith.”Disclaimer:This report does not cover all the possible contingencies regarding beneficiary IRAs and the tax implications, on the estate, its heirs, and beneficiaries. My hope is that it informs you well enough for you to know that all concerned needs to consult qualified estate and income tax professionals who have expertise specific to this matter.

What do you mean by Nominee? And what type of account?If this is a Savings or Checking Account and you want to designate a beneficiary that would be payable on death, this is referred to as a POD. You would contact the bank and ask them the procedure for adding a POD or Changing the Beneficiary on a POD. I would imagine if this is a small bank, you could write a letter to designate a new Beneficiary on a POD, but in most cases, the bank is likely to request that you sign a new signature card.If you are talking about an IRA or Roth IRA, you would contact the bank and ask how to change the beneficiary on the IRA. Typically, this is done by letter, or they may have a beneficiary designation form.In either case, you will need to have the Beneficiary’s Full Name, Date of Birth, contact information (either address or phone number), and in some cases they may ask for the beneficiary’s Social Security Number.If you write a letter, you will want to include your name, your address, your account number, your date of birth, and social security number, a phone number and then request that the Beneficiary be changed, and list the new Beneficiary Name, address, phone number, date of birth, and social security number and then you would need to say whether Primary or Contingent Beneficiary and the percentage of the account to go to that Beneficiary.You can typically designate a Primary and a Contingent Beneficiary. The Contingent Beneficiary would receive funds in the event of the Primary Beneficiary’s death.You can designate multiple Primary Beneficiary’s as long as you designate the percentage to go to each Beneficiary.You can also designate multiple Contingent Beneficiaries if you have one Primary and you want to say designate multiple grandchildren in the event of a Primary Beneficiary’s death.Designating a POD Beneficiary will allow a Beneficiary to claim the funds in the event of your death without having to wait on a Will or having to go through Probate.I would recommend that you speak with an attorney if you have a complicated Estate Plan or Will.I hope this helps.

Firstly, I'm saddened to hear that your brother's life partner has passed. The frustrations and complexity of dealing with the paperwork only compounds the heartbreak of his loss.Secondly, I am no expert on the situation and would strongly advise your brother to seek the assistance of either/or a qualified probate/estate attorney and financial advisor. You've asked me to answer, so I'll give you my thoughts, but please don't rely on my advice or take any of this as legal or financial consult. I don't know many relevant details in this situation, nor the law in the applicable jurisdictions, and am just "spitballing". ;-)As of January 2014, 16 states and 8 Native American tribal jurisdictions have legalized same-sex marriage (same sex marriage in Illinois will be recognized as legal from mid-June 2014). If your brother and his partner had been legally married in a state that recognizes same sex marriage, then he would be entitled to share in his partner's retirement benefits as a spouse, regardless of whether or not they lived in a state that currently recognizes same sex marriage, per Windsor v. US (June 26, 2013) and the Department of Labor, through its Employee Benefit Security Administration (EBSA) recent guidance on same-sex marriages and retirement plans. New guidance issued by US Labor Department on same-sex marriages and employee benefit plans.Here's a fairly technical article designed for plan sponsors and administrators to understand the implications of the changes to their benefit plans: Page on prudential.com The changes don't only impact inheritance, but also required minimum distribution calculations, in-plan loans, QDRO's (allocations in divorce), etc.However, according to the details of your question, your brother and his partner were never married.You say the bank is.. "refusing to re-title the IRA as an FBO ("for the benefit of"), which allows to to pay the tax at 3% over 20 years. The bank plans... to just transfer the IRA directly to my brother's name, which will result in a 1099 from him next year declaring the lump sum and forcing him to pay a huge chunk off of the top."If your brother's partner had clearly designated your brother as beneficiary with a beneficiary form in place, the bank must retitle the account as an FBO account (unless your brother disclaims the account, in which case it reverts to the estate) and act pursuant to your brother's direction in retitling the account. However, if no beneficiary designation is in place, the account would revert to your brother's partner's estate, and be distributed in accordance with inheritance rules of the state where he passed.If your brother is a designated beneficiary, because they were never married, he would be a "non-spousal beneficiary". The rules are different for inheriting an IRA from a spouse or from a non-spouse. He would be treated under the law as a non-spousal beneficiary no matter where the assets or bank was located; and no matter where he lived. The IRA would not pass through probate; but your brother still would have several decisions to make, and depending on your brother's age, whether or not his life partner had already been taking distributions on the account, etc., and other considerations, your brother would be able to make some choices regarding the amount of time he would have to take distributions, and then pay relevant taxes on those distributions. It's complicated: here are a few reference articles to help figure out the best strategy to take for IRA (and Roth IRA) non-spousal beneficiaries:Five Rules For Inherited IRAsIf You Are a Non-Spouse Beneficiary - Fidelity.comNon-Spouse Inherited IRAs: How to Avoid Making Common Mistakes8 Ways To Go Wrong With An Inherited IRAVanguard - inherited IRA - nonspouse as beneficiaryNo matter which article you click on, the theme is the same: it's complicated, and worthwhile consulting with a financial and legal professional, especially if the amount is significant.I recently was a named beneficiary of a small non-spousal IRA. I was able to retitle the account as an FBO account; and I am required to take distributions every year and pay taxes on them according to my life expectancy, under the tables). I also could have taken the whole thing; and paid taxes (without the 10% penalty for early withdrawal) on the entire amount. If your brother is a named beneficiary under his partner's IRA, he would probably have the same rights (incorporating other considerations as well, such as whether the IRA was a Roth IRA established less than 5 years ago, etc. - it's super-complicated).I don't understand what the "3% tax over 20 years" refers to; I have never heard of such a rule or allowance. Tax on distributions from an IRA depend on your overall tax bracket; and are subject to an additional 10% if you are taking an early withdrawal. If the bank intends to transfer the IRA directly to your brother without segregating the account and retitling it directly into his name, it's possible that they don't have a beneficiary form on file; in that case, however, the account would be considered part of his partner's estate and have to go through probate (and rules vary, state to state, on that) so they can't do that transfer unless it's through the court-ordered probate process and your brother is a beneficiary under the estate.I recently was a named beneficiary of a small non-spousal IRA, so the account was able to pass to me outside of the probate process. I was able to retitle the account as an FBO account; and I am required to take distributions every year and pay taxes on them according to my life expectancy, under the tables). I also could have taken the whole thing; and paid taxes (without the 10% penalty for early withdrawal) on the entire amount. If your brother is a named beneficiary under his partner's IRA, he would probably have the same rights (incorporating other considerations as well, such as whether the IRA was a Roth IRA established less than 5 years ago, tax year, etc. - it's super-complicated).I wouldn't want to make any judgments regarding bank policies on discrimination against homosexuals in this situation. I don't know if in Alabama or Arkansas sexual preference is a protected class; and I don't know whether or not either have rules or qualifications regarding domestic partnerships, or common law marriages and whether or not those impact estate and probate determinations. Even if I did, I'm not sure that any laws regarding discrimination would be directly applicable in this instance.As I see it, the key questions here, given that your brother and his partner were never married, are:1. Is your brother a named beneficiary under the IRA?2. If so, how do the tax rules regarding the IRA impact him, and how does he want to take title?3. If he is a named beneficiary under the IRA, the Bank MUST act pursuant to his instructions. All he needs to do is show proper identification.4. If he not a named beneficiary and there are no other named beneficiaries on the account, the account is part of his partner's estate, and has to be probated (I think, I could be wrong; again I'm not a estate/probate/tax attorney).5. Does your brother know any estate/probate lawyers? He should find one, before the Bank takes any action, and prepare to challenge the bank's action, if they've moved forward without his consent or appropriate instruction from the court, depending on the situation.It's complicated.