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IRA Beneficiary Disclaiming His/Her Interest


Guest ERISA_kid
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Guest ERISA_kid

Let's say an IRA beneficiary disclaims an interest in a decedent's IRA eleven months after the decedent passes away. In this instance, the disclaimer would not qualify for federal estate and gift tax purposes (Code Section 2518) since it was not executed within nine months of the decedent's death. However, would this beneficiary be precluded from disclaiming the IRA interest entirely since the disclaimer doesn't qualify under 2518?

I would think that, provided the disclaimer qualified under state law, the IRA custodian should honor the disclaimer, notwithstanding the fact that it doesn't qualify under 2518, and pay out the IRA to the alternate beneficiary under the IRA agreement.

Any insight anyone may have would be greatly appreciated.

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The purpose of executing a valid disclaimer is to treat the disclaimant as being deceased for gift tax purposes. If the disclaimer is not valid then the disclaimant is treated as making a taxable gift to the recipient which will be subject to gift tax if it exceeds $11,000. The gift tax can be eliminated by using the life time gift tax credit of up to $1M. There is an interesting question of whether the custodian would regard the invalid transfer as an assignment of interest in the IRA by the disclaimant which would result in income taxation to the disclaimant under Reg. 1.408-4(a)(2). I have never had a client execute an invalid disclaimer.

mjb

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Guest halka

kid - I hope your question is purely hypothetical... mbozek is right (as usual).... a "nonqualified disclaimer" is a gift and, in the case of an IRA, would also be an assignment of income - resulting income taxes being assessed to the disclaimant. Can't think of any good reason for a nonqualified disclaimer of an IRA -- that's probably why no one has seen one.

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