Q: Do I need a beneficiary IRA for an immediate payout in MA?
I recently had an experience in Massachusetts involving a traditional IRA where I am the designated beneficiary. The bank is requesting that I open a traditional beneficiary IRA to receive an immediate payout. Is this a common or required procedure for payouts, and are there any alternatives?
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A:
You typically don't need to open a beneficiary IRA for an immediate payout, though some financial institutions have specific procedures. When inheriting an IRA, you generally have options including taking a lump-sum distribution, transferring to an inherited IRA, or in some cases, transferring to your own IRA (only available for spouse beneficiaries).
The bank might be asking you to open a beneficiary IRA as their standard process, even for an immediate distribution. This creates a paper trail showing the funds properly transferred from the original IRA to you as the beneficiary before distribution. Massachusetts follows federal guidelines on this matter, so there aren't unique state requirements forcing this procedure.
You could ask if they'll process a direct distribution without the intermediary account, as this is allowed under IRS rules. Remember that regardless of the distribution method, you'll face tax consequences on the withdrawal. I suggest discussing this with a tax professional familiar with inheritance matters to understand your specific situation, as different options may have varying tax implications depending on your relationship to the deceased and other factors.
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