When you disclaim inherited or retirement plan funds, the portion that you disclaim typically passes to someone else and is unavailable to you. Generally, if an IRA owner or retirement plan participant dies, and you are a designated beneficiary of the account, you can choose to disclaim all or a portion of the funds that you inherit. This gives you some flexibility to tailor your decision regarding those funds to your own needs and situation. You may opt to disclaim your entire share of the inherited funds for tax reasons. Or, you can disclaim a portion of the funds and receive the other portion as distributions.
If a named beneficiary disclaims an interest in an inherited IRA, the disclaimed portion goes to the next beneficiary in line. The disclaimer is effective for both income tax and estate tax purposes. The original beneficiary won't be taxed on the funds, and the recipient will be treated as receiving the funds directly from the decedent.
The 360 Degrees of Financial Literacy Web site offers general information for managing personal finances and does not recommend specific financial actions. For financial advice tailored to your situation, please contact an expert such as a CPA or a personal financial advisor.