If, after consulting with your attorney and tax advisor, you find that you will not need or want all or some of your inherited IRA assets during your lifetime, you may want to disclaim—or refuse to inherit all or part—of these assets. Call a Fidelity inheritor services specialist at 800-544-0003 if this is the case.
Your disclaimed inheritance would then be passed on directly to the next eligible beneficiaries. It is important to note that the beneficiaries must be named on the IRA, otherwise assets will pass according to the rules of succession as outlined in the applicable Fidelity IRA Custodial Agreement and Disclosure Statement (PDF). Any minimum required distributions would be based on the other beneficiaries’ ages, rather than your own.
If the other beneficiaries are younger than you, you would, in effect, be stretching out the potential for tax-deferred growth on this IRA legacy. For example, if your spouse named you as the primary beneficiary of his IRA, and your son as the contingent beneficiary, if you disclaim your IRA inheritance (meeting all the necessary requirements), your son would inherit all of the IRA assets. Since the minimum required distributions would now be based on his life expectancy, the MRD amount would be lower, leaving more assets in the account to potentially compound tax-deferred.
Disclaiming all or part of your IRA inheritance may be advantageous in the following situations:
- You don’t need all or some of these assets and you’d like a younger beneficiary to be able to maximize the potential for tax-deferred growth by stretching distributions out over his/her lifetime.
- The decedent’s estate was not structured ideally for estate tax purposes. A disclaimer may be used to allow assets that would otherwise be passed to the surviving spouse to go to other beneficiaries. While assets left to a spouse are generally not subject to estate taxes, they will be part of your estate upon your passing. If you can afford it and it aligns with your goals, you may want to consider disclaiming an amount up to the estate tax exemption limit in order to take advantage of your estate tax exemption.
Note: If you want to take advantage of this option, you must disclaim assets within nine months of the IRA owner's death—before you've actually taken possession of those assets. A disclaimer is an irrevocable decision to give up your right to inherit the IRA assets. Be sure to consult with a tax or legal advisor about this option and to verify if an Inheritance Tax Waiver is required by the decedent's state of residence.