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Fix inherited IRA errors
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October 10, 2000: 11:34 a.m. ET
Think you have no options? Thanks to recent IRS rulings, you just might
By Ed Slott
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NEW YORK (CNNfn) - If you plan to leave an IRA to somebody other than your spouse, and you passed age 70-1/2 without making all of the right IRA distribution decisions, you may be thinking you missed the boat.
You may figure that when you die, your "non-spouse beneficiary," like a child, will have to empty out that IRA right away because you didn't meet those deadlines correctly. That would subject your child to steep taxes and rob him of a chance for long-term savings.
 But I've found that new IRS rulings are allowing non-spouse IRA beneficiaries to extend distributions over the rest of their lifetimes regardless of the mistakes that happened.
Here's how it works.
First, let's go over some basics.
The key IRA decisions are the selection of your beneficiary and the IRA distribution method. Those decisions should be made by your Required Beginning Date (RBD). Your RBD is April 1 after the year you turn 70-1/2.
If you do not make these decisions by then, they will be locked in for you based on the default methods used by the banks, brokers or mutual fund companies who are the custodians for your IRA, and these decisions may not be in your best interest.
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.
The way to make the most of your IRA is to keep it growing, tax-deferred, for as long as possible after your death. The way to do that is by stretching post-death distributions to beneficiaries based on some younger beneficiary's life expectancy. To do that, the elections must have been made before your RBD.
However, those who have passed age 70-1/2 and have not made the proper elections, may still be able to correct their decisions or the decisions that have been forced upon them by default.
In the latest rulings from the IRS, the government is saying that even though the IRA owner elected the distribution method known as "Recalculation," and the life expectancy known as "single life" there still may be some hope.
Visit Ed Slott's irahelp.com
The key will be whether or not the beneficiary is named by your RBD. If the answer is yes, then after the death of the IRA owner, that beneficiary can continue distributions over his remaining life expectancy. He will not be forced to withdraw the entire account by the end of the year after the IRA owner's death.
Right beneficiary, wrong method
In a number of recent IRS rulings the IRS has taken the position that merely naming a beneficiary by your RBD, even if you did everything else wrong, will entitle that beneficiary to continue post-death IRA distributions over his or her remaining life expectancy. The IRS has ruled that the beneficiary, if timely named before the RBD, will not be forced to withdraw the entire IRA account by the end of the year after the IRA owner's death.
The problem is most advisers and financial institutions will tell those who inherit IRAs from their parents (where the parents elected Recalculation and single life) that they MUST withdraw the entire account by the end of the year following the year of the IRA owner's death.
IRA beneficiaries, in particular, non-spouse beneficiaries, should be aware that as long as a proper IRA beneficiary form can be found, the IRA would be able to live on.
Your beneficiaries should know where your executed IRA beneficiary forms are for every IRA you own, so that they can provide it to the financial institution.
Those who are about to inherit IRAs from their parents should be aware of this position taken by the IRS in the recent rulings. IRA beneficiaries should not simply distribute an inherited IRA on the say-so of some financial institution that is not in touch with the way the IRS is currently ruling on these issues.
They should advise the institution that the IRS would allow the IRA to be stretched out over their remaining life expectancy.
* Disclaimer 
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