Your individual retirement account is a valuable asset that might extend beyond your lifetime. You can name one or more beneficiaries to receive the assets in your IRA after your demise. In most states, you are free to name any person, trust or institution to receive an IRA bequest, but special rules apply to naming beneficiaries if you live in any of the nine community property states. Ohio isn't on the list.
Community Property Laws
The nine states that have adopted community property laws are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin. Another state, Alaska, allows married couples to adopt a community property arrangement. The general thrust of these laws is that a married couple shares equally any money earned or property purchased during a marriage. The sharing principle also applies to debts either partner incurs while married. Property inherited by just one spouse doesn't count as community property. When a spouse dies in a community property state, at least one half of the estate goes to the surviving spouse unless other arrangements have been agreed upon. Community property laws are set and administered by the state, not by the federal government.
IRA Beneficiary Form
You don’t have to fill out a beneficiary form when opening an IRA, but failure to do so might cause confusion after your death and might even cause your IRA to be subject to probate, a fate it normally avoids. Whether you fill out the form or not, if you live in a community property state, your spouse will get at least half of your IRA after your death unless the spouse has waived the inheritance. IRA custodians in the nine community property states require your spouse’s signature on the beneficiary form granting permission for you to name some other beneficiary. Ohio is not a community property state, making your spouse’s consent unnecessary when you name IRA beneficiaries.
If your spouse dies before you do, you have the right to immediately name a new beneficiary to your IRA, but your spouse’s estate remains the beneficiary of your IRA for the remainder of the year of your spouse’s death. If you divorce your spouse and remarry, you can name your new spouse as beneficiary, but your former spouse will still be entitled to half of your IRA for the remainder of the divorce year. If your spouse is awarded your IRA in a divorce settlement, you can have the IRA retitled in your former spouse’s name. If you are age 70 1/2 or older at the time of divorce, you might have to refigure your required minimum distributions beginning in the year following the divorce.
Joint Life Expectancies
You must begin taking required minimum distributions from your traditional IRA after reaching age 70 1/2. You base the annual distribution amount on your life expectancy as specified by the Internal Revenue Service. If your spouse is your IRA’s sole beneficiary and at least 10 years younger than you, the IRS permits you to figure your required minimum distributions based on you and your spouse’s joint life expectancies. You lose this benefit in the year following your divorce from your younger spouse, which will increase your annual required minimum distribution unless you remarry someone even younger.
Based in Greenville SC, Eric Bank has been writing business-related articles since 1985. He holds an M.B.A. from New York University and an M.S. in finance from DePaul University. You can see samples of his work at ericbank.com.