IRA Beneficiary Restrictions

The Use of Special Beneficiary Restrictions in an IRA

We now have a new tool in our legal planning toolbox. In the past, when we have found that a client-owner of an IRA has concerns regarding a beneficiary with special needs or a beneficiary who is “financially challenged” or who lacks capacity due to minority or other reasons, we immediately thought of a trust as a method of controlling the future use of the gifted funds. Some financial companies have developed a new IRA product called a “special beneficiary restriction”. The owner can divide an IRA and name a transfer-on-death traditional beneficiary (or beneficiaries) and a special beneficiary with the restrictions on the gift.

A special beneficiary designation is not intended for a spouse. An owner can name WHO will receive the IRA at death, HOW the money is to be paid and WHEN the restriction will be lifted in accordance with some simple rules and guidelines.

For example, the IRA can pay the beneficiary a restricted amount equal to the beneficiary’s “required minimum distribution (RMD) until age 50. At age 50, the restriction terminates (or if the account drops below $10,000 the restriction is removed). The owner can also designate an earlier age than 50 to remove the restriction.

A caveat is that the special beneficiary may be restricted as to his or her access to the funds but has full control regarding investment decisions. This tool can save the cost of drafting a trust and the annual costs associated with maintaining a trust.

Whether or not a special beneficiary restriction is right for you as an IRA owner depends on many factors which need to be reviewed in some depth. If you wish to discuss gifting of an IRA via a trust or a special beneficiary designation please call us for an office visit or schedule an “elderlaw-housecall” and we will come to you.


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The Law Offices of Jeremy W. Howe, LTD. are ElderLaw attorneys in Rhode Island who specialize in Wills and Trusts, Estate Planning, Guardianship, Probate, and Veterans Aid and Attendance Benefits.

They also are Newport Rhode Island Divorce Lawyers, Attorneys, Mediators, and Arbitrators providing services for Family Law issues such as Divorce, Child Custody and Visitation, Support, and Military Family Law. 

Call them today at 401-841-5700 or visit them on the web at http://www.CounselFirst.com.