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New IRA withdrawal rules
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January 31, 2001: 6:25 a.m. ET
Proposed regulation changes will allow beneficiaries of IRAs more flexibility
By Ed Slott
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NEW YORK (CNNfn) - The new regulations on withdrawals from IRAs not only provide benefits to you while you're alive, but also provide flexibility for your beneficiaries after you die. This is something that was simply unavailable under the old rules.
A major provision in the new IRA rules is that a beneficiary can be changed after the death of the IRA owner. The rule means the designated beneficiary is not determined until Dec. 31 of the year following the year of the IRA owner's death.
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The designated beneficiary is the person whose life expectancy on IRS tables will be used to figure required minimum distributions on the inherited IRA.
There can only be one designated beneficiary per IRA. If there is more than one beneficiary on an IRA, the designated beneficiary is the oldest beneficiary, or the one with the shortest life expectancy.
 The designated beneficiary can only be changed to another beneficiary already named by the IRA owner. The change is done by an estate planning strategy called a "disclaimer."
A disclaimer is simply a written refusal by a beneficiary of part or all of his inheritance. This must be done within nine months of the date of death and the beneficiary cannot direct who will receive the property that he disclaims. The result is that the property (the IRA) will pass to whoever is legally next in line. That person would be the contingent beneficiary.
For example, if your spouse was your primary beneficiary and your child was your contingent beneficiary, if your spouse disclaimed her interest in your IRA, it would pass to your child.
Read Ed Slott's columns on the three most important decisions you'll make with your IRA: Choosing a beneficiary, picking a life expectancy and picking a distribution method.
This provision allows you to name your spouse as beneficiary in case she will need the money, but if she doesn't, she can disclaim the IRA and it will pass to the child.
This gives you the flexibility to leave the IRA to your spouse and still have an opportunity for your child to stretch the IRA if the spouse feels she does not need the money. The spouse's decision about needing the money can be made after the death of the IRA owner.
Under the old rules, the spouse could still have disclaimed and the child would have received the IRA as contingent beneficiary. But the child would not have been able to "stretch" the inherited IRA over his own lifetime. The child would have been stuck with the spouse's shorter life expectancy.
Under the old rules, the child could not have been changed to the designated beneficiary after the death of the IRA owner, but now he can, as long as he was at least named contingent beneficiary by the IRA owner.
This new setup gives the IRA owner the flexibility to name several primary and contingent beneficiaries and have one of them become the designated beneficiary after death. 
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