I recommend using this format: John Smith IRA/ Deceased 1/1/2009/ FBO (for the benefit of) Mary Smith as beneficiary.
Make sure that the financial institutions gets the titling right not only on the statements it sends to you, but also on the internal records it uses for reports to the IRS, he says. Some large IRA custodians use the beneficiary’s name on the statements sent to him or her, but use the formal titling (as in the “John Smith” example, above) on the information it sends to the IRS to avoid confusing beneficiaries.
After you have retitled the inherited IRA, you can stretch out withdrawals from the account across your lifetime, rather than being forced to withdraw the funds sooner. That action gives you a chance to extend the time that tax-deferred earnings can accrue which should reduce the tax burden on the distributions. Distributions for an inherited IRA generally have to be made every year. The first has to be made by Dec. 31 of the year following the year of the original owner’s death.
If you inherit an IRA along with other heirs, such as siblings, you can split up the account, allowing each heir to spread withdrawals across his or her own life expectancy. Otherwise, you get stuck using the life expectancy of the oldest heir.
One other note: Just because you have to leave the IRA intact doesn’t mean you’re stuck with the original investment or custodian. You can use a trustee-to-trustee transfer to move the account directly to another financial institution.