Multiple Choice
Which of the following statements best explains how the risk level of your investment choices affects your total retirement benefit?
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7. Receivables and Investments
Introduction to Investments in Securities
Multiple Choice
When Rick recently died and left behind an individual IRA account in his name, which of the following statements best describes what typically happens to the IRA account?
A
The IRA account is automatically converted into a joint account with Rick's closest living relative.
B
The IRA account is closed and all funds are forfeited to the IRS.
C
The IRA account is transferred to the designated beneficiary, who may have options for distribution based on their relationship to Rick.
D
The IRA account is immediately liquidated and the proceeds are paid to the state.
Verified step by step guidance1
Step 1: Understand the concept of an Individual Retirement Account (IRA). An IRA is a type of retirement savings account that allows individuals to save and invest for retirement with tax advantages.
Step 2: Learn about the process when the account holder of an IRA passes away. Typically, the IRA account does not get converted into a joint account or forfeited to the IRS. Instead, it is transferred to the designated beneficiary.
Step 3: Review the role of the designated beneficiary. The beneficiary is the person or entity named by the account holder to inherit the IRA. This designation is made during the account holder's lifetime.
Step 4: Understand the options available to the beneficiary. Depending on their relationship to the deceased (e.g., spouse or non-spouse), the beneficiary may have different options for distribution, such as rolling over the account, taking distributions, or liquidating the account.
Step 5: Clarify misconceptions. The IRA account is not automatically converted into a joint account, forfeited to the IRS, or liquidated with proceeds paid to the state. Instead, it is transferred to the designated beneficiary, who then decides how to manage the funds.
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