ALEXANDRIA, Va. (6/22/11)--Under the right circumstances, an individual retirement account (IRA) with a designated beneficiary would continue to receive separate federal share insurance coverage after the owner’s death, according to a recent National Credit Union Administration (NCUA) legal opinion letter. NCUA Associate General Counsel Hattie M. Ulan writes in a June 6 letter that NCUA’s regulations provide share insurance coverage for a member’s IRAs up to a maximum of $250,000 that is separate from the member’s other accounts at the same credit union. [12 C.F.R. §745.9-2(c)(1)]. With respect to an inherited IRA, NCUA share insurance coverage will continue up to the $250,000 maximum, separate from the share insurance coverage for other IRAs and accounts owned by the designated beneficiary, if certain conditions are met. Those conditions include:
* The inherited IRA continues to be maintained in the name of the decedent; * The Internal Revenue Code and other applicable tax laws recognize the continued existence of the IRA after the death of the decedent; * The Internal Revenue Code and other applicable tax laws consider the named beneficiary as a qualified designated beneficiary for tax regulatory purposes; and * The inherited IRA is not commingled with other IRAs owned by the designated beneficiary.
Ulan cautioned in her letter, however, that issues related to tax-advantaged savings accounts are governed by the Internal Revenue Code and other applicable tax laws. They include, but are not limited to, the inheritability of an IRA, determination of who and how many individuals can qualify as a designated beneficiary, and account distribution options. “These tax related issues can be complex and are outside the purview of NCUA. We recommend that members fully understand these tax considerations as part of their overall financial planning and account structuring for share insurance purposes,” the NCUA opinion letter states.