Jim writes:<<I just read the Retirement emial sent out for 9/26. My question is about the distribution of the IRA after the death of the account holder that had not started minimum distributions and not reached 70 1/2. In your email you state that the distribution must be within 5 years after the date of death and thereby involking the taxes associated with the distribution. However, I read an article about the same topic earlier on CNN that said if the benificairy elects annual distributions within 1 year of the death then the 5 year rule can be avoided and the taxes would only be on the portion of the IRA that is withdrawn.>>I think this is the paragraph in my article that concerns you.For this article, I'm really concerned about the attention we gave to the documents we completed and signed when we opened the IRA. As an example, virtually all of us married types would have named a spouse as beneficiary of the account. But did we name any contingent beneficiaries in case the spouse predeceases us? If not and if indeed that situation arises, then two things will happen. First, when we reach the age for minimum required distributions (MRD) we must use a single life expectancy method of withdrawal instead of a potentially longer joint life expectancy method. The latter helps to minimize income taxes. Second, after we have begun MRD, then when we die the lack of a living beneficiary means the balance in our account must be paid to our estate and taxed in a year. If we haven't reached MRD age yet, it must be paid out and taxed no later than five years after death. In either case, estate and income taxes could eliminate a large portion that would otherwise go to surviving heirs.Note that it refers to having named a spouse as beneficiary who predeceases us. A failure to name a contingent beneficiary or a new one results in the five-year payout before MRD or a one-year payout after MRD. That's the part you missed.Regards..Pixy
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