Frequently Asked Questions


Here you will find questions and answers on topics that are of interest to bankers in the areas of operations and compliance. These Q&A’s are actual questions posed to Banking Spectrum’s Hotline Services, and are excerpted from The Gold Book.
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Q. Customer M has an IRA, the M IRA, at your bank and has named son S as sole beneficiary. M dies. S comes to the bank to arrange for a life expectancy based distribution. He also wants to name his son G as his beneficiary, to receive the proceeds of the M IRA in the event of his death. May S name G as beneficiary?

A. Sure.
The question of whether or not a non-spousal IRA beneficiary can name his or her own beneficiary has generated a lot of confusion over the years. The confusion centers on the difference between the right to receive benefits under the tax-preferred status of the IRA versus the right to receive funds from a deposit account after the death of the owner.

When an IRA grantor dies, the funds belong to the named beneficiary and may be withdrawn subject to the IRA rules. When the beneficiary dies and there are funds remaining in the account, who gets the funds? Not the grantor’s estate or the grantor’s contingent beneficiaries. Rather it’s whomever the deceased IRA beneficiary selected, or the estate, if none was selected.

How are the funds to be paid to the beneficiary’s beneficiary? This is where the original confusion started. Generally, before the 2002 IRA rules were amended, the payout methods were largely based on the life expectancy of the grantor (sometimes on the beneficiary’s) and when each died, the payout period often reverted to Zero, requiring immediate distribution. The new IRA rules now permit payments over the IRS’ Uniform Life Expectancy Table, and, at death, does not require that the payout period revert to Zero. Hence, in the question presented, the beneficiary’s beneficiary could conceivably continue being paid over the remaining term of the original payout period.

For information on these and other banking issues, please consult The Gold Book.
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