Question

Which of the following is TRUE if the owner of an IRA names their spouse as beneficiary, but then dies before any distributions are made?

a) The funds are distributed to the spouse immediately.
b) The IRA is closed, and the funds are forfeited.
c) The funds are transferred to the owner's estate.
d) The spouse has the option to inherit the IRA and defer distributions.

Answer 1

The correct answer is that the spouse has the option to inherit the IRA and defer distributions. The IRA is directly inherited by the named beneficiary and is not subject to intestacy laws.

Step-by-step explanation:

If the owner of an Individual Retirement Account (IRA) names their spouse as the beneficiary and then passes away before distributions have been made, option d) the spouse has the option to inherit the IRA and defer distributions is TRUE. Unlike the distribution of assets under intestacy laws where courts determine asset distribution for those who die without a will or trust, the named beneficiary on retirement accounts, like an IRA, directly inherits the assets. The surviving spouse has several options, one of which includes treating the IRA as their own, which allows them to defer distributions until they are required to take them, typically at age 72 for traditional IRAs under current law.