Beneficiary disclaiming an IRA

Disclaiming an inherited IRA 

To disclaim an IRA inheritance, a person must follow specific steps and meet certain requirements to make a qualified disclaimer. This essentially means refusing to accept the inheritance, allowing it to pass to the next eligible beneficiary as if the disclaiming person had predeceased the IRA owner

1. Understand the Consequences

Before disclaiming, consider the implications:

• You give up all rights to the IRA.

• The IRA will pass to the contingent beneficiary (usually named in the original owner's IRA documents).

• Once disclaimed, it cannot be undone.

2. Meet the IRS Requirements

To legally disclaim an IRA inheritance, you must meet these conditions under IRS rules (IRC §2518):

✅ Written Disclaimer: The disclaimer must be in writing.
✅ Timely: You must disclaim within 9 months of the IRA owner's death.
✅ No Prior Benefit: You cannot have used or benefited from the IRA before disclaiming.
✅ Irrevocable and Unqualified: The disclaimer must be complete and without any conditions.
✅ Proper Transfer: The IRA must go directly to the next beneficiary as if you had died before the original owner.

3. Draft the Disclaimer Letter*

Typically includes:

• Your full name and relationship to the deceased

• The deceased’s name and date of death

• Description of the IRA account

• A clear statement of refusal to accept the asset

• Signature and date
  
  

4. Submit the Disclaimer

Send it to the IRA custodian (the financial institution holding the IRA). Include:

• The written disclaimer

• Any documents they require (like a death certificate)
  
  

5. Notify Other Parties (Optional but Helpful)

You might want to notify:

• The estate executor

• Other beneficiaries

* You may want an estate attorney to help you draft this correctly.

Sample IRA disclaimer letter* 

[Your Full Name]

[Your Address]

[City, State, ZIP Code]

[Email Address]

[Phone Number]

DATE

To:

[IRA Custodian Name]

[Institution Address]

[City, State, ZIP Code]

Re: Disclaimer of Inherited IRA

IRA Account Number: [Insert Account Number]

Deceased Account Holder: [Full Name of Deceased]

Date of Death: [MM/DD/YYYY]

Dear [Custodian's Name or “To Whom It May Concern”],

I, [Your Full Legal Name], hereby irrevocably and unconditionally disclaim all rights, title, interest, and claim to the inherited IRA identified above, held in the name of [Deceased's Name].

I make this disclaimer pursuant to Internal Revenue Code Section 2518 and affirm that:

- This disclaimer is being made in writing and is delivered no later than nine (9) months after the date of death of the original account holder.

- I have not accepted any interest in or benefit from the IRA.

- This disclaimer is unconditional and irrevocable.

As a result of this disclaimer, I understand that the IRA will pass to the contingent beneficiary or be treated as if I predeceased [Deceased’s Name], in accordance with the terms of the IRA and applicable law.

Please let me know if you require any additional documentation to process this disclaimer. Thank you for your attention to this matter.

Sincerely,

[Your Signature]

[Your Printed Name]

Disclaiming Tips

• Include a copy of the death certificate with your letter.

• The person inheriting the account must execute the disclaimer before receiving any benefits from the account.

• Double-check the exact requirements with the IRA custodian — some may have a specific form.

• Check the state requirement for disclaiming.  The procedures can differ between states.

• Send via certified mail or another tractable method for proof of delivery.

* You may want an estate attorney in your state to help you draft this correctly and to fully understand

Disclaiming state procedures

For example under Pennsylvania Law:

 Pennsylvania follows the Uniform Disclaimer of Property Interests Act    .), which aligns with federal law and provides guidance on disclaiming various types of property, including retirement accounts. It is recommended that the beneficiary sign the disclaimer in the presence of a notary public.https://www.palegis.us/statutes/consolidated/view-statute?txtType=HTM&ttl=20 

Sources

Inherited IRA rules for non-spouse  Fidelity

Disclaiming an IRA in Pennsylvania:

1. Identify the Core Question: The user wants to know if a beneficiary can disclaim an IRA in Pennsylvania.

2. Initial Knowledge Check:

   • Disclaimers are a common estate planning tool.

   • They allow a beneficiary to refuse an inheritance.

   • IRAs are common assets passed to beneficiaries.

   • Disclaimers are generally governed by both federal tax law (IRC Section 2518) and state law.

   • Pennsylvania likely has laws regarding disclaimers.

3. Confirm the "Yes/No": Can a beneficiary disclaim an IRA in PA? Yes, this is generally permissible. Start the answer with a clear confirmation.

4. Identify the Relevant Laws:

   • Federal Law: The Internal Revenue Code (IRC) Section 2518 is crucial because it defines a "qualified disclaimer" for federal gift and estate tax purposes. If it's not qualified, the disclaimant might be treated as having received the asset and then gifted it, triggering potential gift tax. Mention this.

   • State Law: Pennsylvania has its own laws governing disclaimers, likely found in its Probate, Estates and Fiduciaries (PEF) Code. A quick search confirms Pennsylvania has Chapter 62 of the PEF Code (20 Pa.C.S.A. § 6201 et seq.) specifically dealing with disclaimers. Mention this specific statute. State law dictates the mechanics and effect of the disclaimer under property law.

5. Explain Why Someone Would Disclaim: What are the common motivations?

   • Tax Planning: Maybe the primary beneficiary is in a high tax bracket and doesn't need the funds, while the contingent beneficiary is in a lower bracket or needs the money more. Disclaiming allows the IRA to pass directly to the contingent beneficiary, potentially saving taxes overall (especially if the contingent beneficiary can stretch the distributions over their longer life expectancy).

   • Estate Planning/Asset Protection: The primary beneficiary might have significant creditor issues, or disclaiming could help keep the inherited assets out of their own taxable estate if they have estate tax concerns.

   • Eligibility for Government Benefits: Receiving the IRA might disqualify the primary beneficiary from means-tested benefits (like Medicaid).

   • Following the Decedent's Wishes (Unofficially): Sometimes, the decedent expressed wishes that weren't formally documented, and disclaiming helps fulfill them.

   • Correcting an Outdated Beneficiary Designation: The designation might name an ex-spouse or someone the decedent no longer intended to benefit.

6. Outline the Requirements for a Qualified Disclaimer: This is critical. Combine federal and state requirements (which often overlap significantly).

   • In Writing: Must be a written document.

   • Irrevocable and Unqualified: The refusal must be final and without conditions.

   • Timeliness: Generally within 9 months of the later of the date of death or the date the beneficiary turns 21 (federal rule). State law might have its own timeline, but the federal 9-month rule is usually the controlling one for tax purposes. Self-correction: Emphasize the 9-month rule from the date of death for IRAs.

   • No Acceptance of Benefits: The beneficiary cannot have accepted the IRA or any benefits from it before disclaiming (e.g., taking a distribution, retitling the account in their name as owner rather than beneficiary).

   • Passage Without Direction: The disclaimed interest must pass to someone else (the contingent beneficiary or according to the IRA agreement/state law) without the disclaiming person directing who gets it.

   • Delivery: The written disclaimer must be delivered to the appropriate party (usually the IRA custodian/trustee).

7. Explain the Effect of a Disclaimer:

   • The disclaimant is treated as having predeceased the IRA owner for the purpose of the disclaimed asset.

   • The IRA passes directly to the contingent beneficiary named in the IRA agreement.

   • If no contingent beneficiary is named (or they also disclaim), the IRA agreement's default rules apply (often meaning it goes to the decedent's estate). Correction: Emphasize checking the IRA agreement first.

   • If it goes to the estate, it passes according to the will or intestacy laws, which might have different tax consequences (loss of stretch IRA potential, faster distribution required).

8. Add Important Considerations/Caveats:

   • Contingent Beneficiaries: Who gets the IRA if disclaimed? This is crucial.

   • IRA Custodian Rules: The custodian will have specific procedures.

   • Complexity: Disclaimers involve legal and tax rules.

   • Seek Professional Advice: Strongly recommend consulting with an estate planning attorney and potentially a financial advisor/CPA familiar with Pennsylvania law and IRA rules. They can analyze the specific situation, ensure compliance, and advise on whether a disclaimer is the best strategy.

   • Irrevocability: Once made, it can't be taken back.

9. Structure and Refine: Organize the points logically.

   • Start with a clear "Yes."

   • Mention governing laws (PA & Federal).

   • Explain the "Why."

   • Detail the "How" (Requirements).

   • Describe the "What Happens Next" (Effect).

   • Include crucial warnings and advice.

   • Use clear headings or bullet points for readability.

   • Ensure the language is accessible but accurate. Add a disclaimer that this is not legal advice.

10. Final Review: Read through to check for clarity, accuracy, and completeness. Ensure the focus remains on Pennsylvania where relevant (mentioning the PEF code) while acknowledging the interplay with federal tax law. Make sure the 9-month deadline is clear. Ensure the importance of the contingent beneficiary is highlighted.

Additional resource

In Pennsylvania, a beneficiary can disclaim their interest in an inherited IRA by following these steps to ensure a qualified disclaimer

: 

1. Written Disclaimer:

• Prepare a written document clearly stating the beneficiary's irrevocable refusal to accept the IRA assets.

• Ensure the disclaimer is signed and dated by the beneficiary.

• It is recommended that the beneficiary sign the disclaimer in the presence of a notary public. 

2. Delivery and Timing:

• Deliver the written disclaimer to the IRA custodian or plan administrator (the financial organization holding the IRA).

• The disclaimer must be delivered within nine months of the IRA owner's death or within nine months of the beneficiary turning 21, whichever is later. 

3. No Acceptance of Benefits:

• The beneficiary must not have accepted any of the IRA assets or any benefits associated with them prior to making the disclaimer.

• This typically means not taking any distributions, directing how the assets are invested, or otherwise exercising control over the IRA.

• Exception: The beneficiary can take the Required Minimum Distribution (RMD) for the year of the IRA owner's death without invalidating the disclaimer of the remaining assets. 

4. Passing of Assets:

• The disclaimed assets will pass to the next eligible beneficiary as designated in the IRA agreement (e.g., contingent beneficiaries).

• If no other beneficiaries are named, the assets may pass to the IRA owner's estate according to the default provisions of the IRA plan agreement.

• The beneficiary making the disclaimer cannot direct who receives the disclaimed assets. 

Important Considerations:

• Irrevocable Decision: Disclaiming an inheritance is a permanent decision that cannot be revoked. 

• Legal Advice: It is highly recommended to consult with an estate planning attorney or financial advisor to ensure the disclaimer meets all legal requirements and aligns with the beneficiary's overall financial goals. 

• Pennsylvania Inheritance Tax: While a qualified disclaimer can help the beneficiary avoid income tax on the inherited IRA assets, the disclaimer may have implications for Pennsylvania inheritance tax. Consult with a tax advisor for guidance on inheritance tax consequences.