In a private letter ruling, the IRS has restated that the beneficiary of an individual retirement account (IRA) must be identifiable “without qualification” in order to avoid the application of the five year distribution rule for a required minimum distribution. In this case, the taxpayer designated the beneficiary of his IRA as the individuals “as stated in will.” The IRS found that this did not provide any identifiable beneficiaries. The IRS held that while a designated beneficiary does not need to necessarily be specified by name, it must be an individual that is identifiable under the plan and/or written document.
In determining a required minimum distribution from an IRA, only an individual can be designated as a beneficiary. However, the IRS has allowed a trust to be named as a beneficiary if certain requirements are met and the proper documentation is provided. In this case, none of these requirements were met. More specificity in naming the beneficiary was required. Readers are placed on notice to check the beneficiaries stated in their retirement programs to be sure that the names are spelled out to the satisfaction of the IRS requirements.
By: Basi & Basi at the Center for Financial, Legal and Tax Planning for Transworld M&A Advisors