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You > Financial Planning Strategies

Inherited IRA

Have you inherited a Traditional or Roth IRA and contemplating how to receive your benefits? As a beneficiary, the options available to you are important and complex. At Canandaigua National Bank & Trust, our Inherited IRA plan agreement outlines the distribution options available to you. Below is a quick guide to help you review the options:

Traditional IRA Beneficiary

The distribution options available to you depend on if you are the spouse of the deceased IRA holder and whether the IRA holder died before or after their required beginning date (RBD). The RBD is April 1 the following year in which the deceased IRA holder would have reached age 70 1/2.

 *Beneficiary Option Definitions below.  

Beneficiary Options When IRA Holder Dies Before RBD

Spouse is Sole Beneficiary

Non-spouse OR Spouse is not
Sole Beneficiary
  • Distribute entire amount
  • Five-year rule
  • Annual life expectancy payments
  • Treat IRA as Your Own
  • Distribute entire amount
  • Five-year rule
  • Annual life expectancy payments
  • Spouse may rollover to own Traditional IRA

 

Beneficiary Options When IRA Holder Dies On or After RBD

Spouse is Sole Beneficiary

Non-spouse OR Spouse is not
Sole Beneficiary
  • Distribute entire amount
  • Distribute over the longer of the IRA
    holder's life expectancy or spouse beneficiary's life expectancy
  • Treat IRA as Your Own
  • Distribute entire amount
  • Distribute over the longer of the IRA holder's life expectancy or beneficiary's life expectancy 
  • Spouse may rollover to own Traditional IRA

Roth IRA Beneficiary

The distribution options available to you depend on if you are
the spouse of the deceased IRA holder.

 

Beneficiary Options - ROTH IRA

Spouse is Sole Beneficiary

Non-spouse OR Spouse is not
Sole Beneficiary
  • Distribute entire amount
  • Five-year rule
  • Annual life expectancy payments
  • Treat IRA as Your Own
  • Distribute entire amount
  • Five-year rule
  • Annual life expectancy payments
  • Spouse may rollover to own Traditional IRA

Beneficiary Option Definitions

Five-year rule: You may withdraw any amount at any time as long as the entire IRA balance is withdrawn by 12/31 of the year containing the fifth anniversary of the IRA holder’s death.

Life Expectancy Payments: This beneficiary option requires you to take payments at least annually, based on a life expectancy. Ideally, this option will provide payments for the remainder of your life. These payments, however, can be accelerated at any time.

  • Deadline for Spouse - While you may start taking distributions at any time, you must begin taking life expectancy by the later of 12/31 of the year following the year in which the IRA holder would have reached 701/2.
  • Deadline for Non-spouse - While you may start taking distributions at any time, you must begin taking life expectancy by the later of 12/31 of the year following the year of the IRA holder’s death.

Treat the IRA as Your Own: If you are a spouse beneficiary, you may generally rollover or transfer the inherited IRA assets to your own IRA.

 

Frequently Asked Questions about Inherited IRAs


How much time do I have to make a decision?
You must make your election by 12/31 following the year of the IRA holder’s death. The IRA holder’s original plan agreement generally outlines which distribution option you must follow if a timely election is not made.

A spouse beneficiary’s option to treat an IRA as his/her own is available at any time after the death of an IRA holder, even if another payout method was selected upon the death of the IRA holder.

Am I allowed to designate beneficiaries for my Inherited IRA?
It may be possible for you to name subsequent beneficiaries who will continue to receive inherited IRA payouts following your death. IRA rules prohibit subsequent beneficiaries from extending the tax-deferred status of the IRA beyond that which is available to you, the original beneficiary. Therefore, a beneficiary who names a subsequent beneficiary does not violate any federal tax laws, as long as the subsequent beneficiary does not extend the life expectancy beyond that by which the original beneficiary was bound.

What are my options if I am one of several beneficiaries?
As long as the inherited assets are accounted separately for each beneficiary by 12/31 of the year following the year of the IRA holder’s death, each beneficiary can set up payments based on their own life expectancies. This can potentially maximize the payout period.

Note: Your financial organization will set up the separate accounts.

Can I move the IRA assets I inherited from my Parent to my own financial organization?
The IRS allows non-spouse beneficiaries to directly transfer inherited IRA assets to another financial organization. The IRA must be set up and maintained as a beneficiary account, and beneficiary distribution rules apply, Some restrictions may apply. Contact us for more information.

What if a trust or estate has been named as the beneficiary?
If the IRA holder dies before the required beginning date (RBD), the trust or estate can take distributions at any time, but must deplete the account according to the five-year rule. If the IRA holder dies after the required beginning date, the trust or estate can either distribute the entire amount, or as a minimum, distribute annual life expectancy payments based on the deceased IRA holder’s life expectancy.

 

Contact Us
If you would like additional information, please use the contact us form or if you would like to speak with a Financial Services Professional, please call 585.419.0670.

 

This material is provided for general information purposes only and is not a recommendation or solicitation to buy or sell any particular security, product or service. Past performance is not indicative of future investment results. Any investment involves potential risk, including potential loss of capital. Before making any investment decision, please consult your legal, tax and financial advisors. Non-deposit investment products are not bank deposits and are not insured or guaranteed by Canandaigua National Bank & Trust, or any federal or state government or agency and are subject to investment risks, including possible loss of principal amount invested.

IRA Service Center

This material is provided for general information purposes only and is not a recommendation or solicitation to buy or sell any particular security, product or service. Past performance is not indicative of future investment results. Any investment involves potential risk, including potential loss of capital. Before making any investment decision, please consult your legal, tax and financial advisors. Non-deposit investment products are not bank deposits and are not insured or guaranteed by Canandaigua National Bank & Trust, or any federal or state government or agency and are subject to investment risks, including possible loss of principal amount invested.