"The Pension Specialists" Blog

Email Guidance – Distribution of Inherited Funds in Iowa

Q-1 A lady has a Roth IRA and at the time of opening she named her husband as the beneficiary. The couple has divorced. The lady never changed her beneficiary. The lady has now passed away with the beneficiary of the Roth IRA being her now ex-husband.

What is the Iowa law regarding the distribution of the inherited funds?

We are also checking with our bank attorney. We will update you after she researches the situation.

A-1 The state of Iowa has enacted a statute - 598.208 which covers the IRA divorce situation. Upon divorce the prior designation of the ex-spouse becomes void unless the IRA owner would re-designate the ex-spouse to again be the designated beneficiary.

This statute changed the law as determined by the Iowa Supreme Court in Schultz v. Schultz in 1999.

The 5-year rule applies to a Roth IRA when a person's estate is the designated beneficiary of a Roth IRA. As presently written, the CWF form defines the decedent estate to be the beneficiary when no one else has been designated as a beneficiary (primary or contingent).

The designation of the ex-spouse is voided. The 5-year rule does not require that there be an immediate lump sum distribution. However, it does require that the inherited Roth IRAs be closed by 12/31/2025 if the Roth owner dies in 2019.

If she had her Roth IRA for at least 5-years, all distributions from the inherited Roth IRA will be tax free.

The two children will not have the right to stretch out distributions (tax-free) over their life expectancy which would have been the case if they had been designated as the contingent beneficiaries.