As the beneficiary of IRA or 401(k) plan assets, you can choose to give up the rights to those assets if you’d prefer not to receive them. However, you only have a certain amount of time to disclaim your interest.
Choosing to refuse an inheritance is a personal choice and can be due to a number of reasons. Here are a few possibilities for why you may wish to disclaim assets:
You want the assets to go to the next named beneficiary, such as a child, sibling, charity or account owner’s estate.
The assets would increase the size of your estate and create tax complications for your own beneficiaries.
Accepting assets would push you into a higher tax bracket.
Receiving an inheritance would disqualify you from receiving certain benefits, such as student loans or Medicaid.
What is a beneficiary disclaimer?
A beneficiary disclaimer is a written document that allows you to decline all or a part of your interest in an IRA or 401(k) plan.* As a result, you’ll be treated as though you predeceased the account owner.
If you’d like to decline your assets, you must provide the written disclaimer to the plan sponsor (typically, the account holder’s employer for a 401(k)) or custodian (the financial institution or provider for an IRA) within nine months of the account owner’s death or within nine months of the date on which you turn 21, if applicable. There is no exception to this rule, even if you did not learn of your inheritance until after the deadline has passed.
Once completed, you cannot change your mind; this disclaimer cannot be revoked.
What are the requirements of a beneficiary disclaimer?
For the beneficiary disclaimer to be valid, the following must apply:
The disclaimer must be in writing.
The written disclaimer must be received by the plan sponsor/custodian within nine months after the account owner’s death or within nine months of the date on which you turn 21, if applicable.
You may not accept any of the disclaimed assets or any of the benefits attributable to the disclaimed assets.
This typically includes doing things like taking a distribution of the assets or directing how the assets are invested.
According to the IRS, the exception to this rule is that if a required minimum distribution (RMD) is due, the RMD amount can be removed from the account and the remaining balance can still be disclaimed.
You are not allowed to direct how or to whom ownership of the assets is transferred. Again, you will be treated as though you predeceased the account owner.
* See Code Section 2518 and Treasury Regulations 25.2518-2 for additional information.