What to Consider When Choosing Beneficiaries for Your Traditional IRA


An important part of estate planning is determining how to transfer your assets to your heirs in a way that will mitigate the tax consequences and administrative burdens for them. IRAs are an essential component of estate planning for several easons:

  • Many people accumulate or consolidate great wealth in their self-directed IRAs.
  • Traditional IRA investment growth is tax deferred until distributed.
  • Legal rights to your IRA assets are transferred directly to your beneficiary upon your death, outside of probate proceedings.

But, because your beneficiaries will be subject to rules dictating when they must take assets out of the IRA and pay tax on their inheritance, you’ll want to evaluate distribution strategies while you’re still accumulating wealth in your self-directedIRA. Here are a few things to be aware of as you choose beneficiaries for your IRA.

Primary vs. Contingent Beneficiaries

Primary beneficiaries still alive (or in existence in the case of a trust or charity) will be entitled to the IRA assets upon your death. If you name more than one primary beneficiary, you must designate how the IRA assets are to be divided among your beneficiaries, usually based on a percentage of assets. If one of your primary beneficiaries dies, generally the other primary beneficiary(ies) gain the deceased beneficiary’s share. If you want a beneficiary strategy that passes a deceased primary beneficiary’s share to their heirs instead of to your other primary beneficiaries, you may need a separate legal document if your IRA custodian allows it, or you may need to establish a trust. A contingent beneficiary only inherits the IRA assets if all your primary beneficiaries die before you do or disclaim their interests in the IRA.


Spouse beneficiaries have the most IRA distribution options. They are generally allowed to stretch payments from the inherited IRA over their lifetime or they can treat it as their own IRA. Both options allow the IRA to continue growing tax-deferred while minimizing the amount the beneficiary is required to take as taxable income each year. If you are married and do not want your spouse as your beneficiary, you may need to ask your spouse to sign a waiver allowing you to name someone else as IRA beneficiary (depending on state law and your IRA custodian’s policy).


Under the new beneficiary distribution rules following the SECURE Act of 2019, minor children are allowed to take a minimum annual payment from a beneficiary RA until they reach age 21. After that, they are required to deplete the IRA within 10 years. Depending on your IRA investments and the size of your account balance, you may want to seek financial advice to determine the tax impact of distributing your account within 10 years and explore whether there are other options that would benefit your adult child, such as establishing a trust to inherit the IRA on their behalf.

Relatives, Friends, and Other People

Most non-spouse IRA beneficiaries must distribute inherited IRA assets within 10 years of the IRA owner’s death. Based on the IRS’s recently proposed regulations, some beneficiaries may be required to take at least annual payments during those 10 years while some may be allowed to take distributions at will, including letting the IRA continue to grow tax-deferred before taking a lump sum distribution by the end of the tenth year. Chronically ill or disabled beneficiaries and those who are less than 10 years younger than you, like a sibling, may be able to stretch the payments for longer than 10 years. All beneficiary options depend, in part, on whether you live past April 1 of the year following the year you reach age 72.


Some IRA owners name a trust as beneficiary of their IRA to enable them to dictate to some extent how the IRA assets will be disbursed after their death. For example, a trust may be used to handle the finances for a dependent with special needs. The tax rules and legal implications for naming trusts as beneficiaries are complex, and some of the rules for trusts for special needs beneficiaries changed with the SECURE Act of 2019. Establishing a trust to inherit your IRA is a strategy that generally requires tax or legal advice to understand the tax implications, how to structure the arrangement, and to create the necessary legal documents.


If you name your estate as beneficiary of your IRA, your IRA assets will be disbursed as part of the probate process according to your will or according to state law if you don’t have a will. If you don’t name a beneficiary for your IRA, your estate may be the default beneficiary under the terms of your IRA document. The IRA rules generally require an estate to take payment of IRA assets within five years of the IRA owner’s death. If you name multiple beneficiaries, naming your estate or another non-person as beneficiary may also affect the options available to your other beneficiaries.

Investment Timing

You may want to consider the effect the distribution timing rules could have on your self-directed IRA investments. Your beneficiaries may end up having to distribute your IRA investments sooner than you had intended. Certain types of alternative assets can also be problematic for beneficiaries to liquidate. On the other hand, avoiding probate may be beneficial for certain types of investments, like real estate, that beneficiaries may want to distribute in-kind and as a lump sum.

Roth IRA Conversions

Roth IRA assets are not subject to the RMD requirements while you’re alive and pass tax free to your IRA beneficiaries upon your death. You may want to talk to a financial or tax advisor about paying tax on your Traditional IRA assets and converting them to a Roth IRA now as part of your estate plan.

Remember to Update

Designating beneficiaries for your IRA is an important step in accomplishing your estate planning objectives. Be sure to re-visit your beneficiary designations periodically in case your objectives or circumstances change, such as a divorce or the birth of a child.