IRA owners need to ensure they are taking appropriate measures to avoid having their IRAs treated as inactive under an unclaimed property statute! New IRS ruling regarding tax treatment of IRAs that become unclaimed property.
In light of the recent change to federal tax law limiting the income tax deduction for state and local taxes, many states are searching for revenue. One increasingly important non-tax source of revenue for states is unclaimed property, which is turned over to the states under a process referred to as escheatment. Over the past few years, state unclaimed property administrators have initiated numerous IRA-focused, multi-state audits of banks, broker-dealers, life insurers and other financial institutions. Under the statutes of most states, traditional IRAs are presumed abandoned—and therefore due for escheat to the states—if there is no owner-generated activity in the account for three to five years after the date for required minimum distributions, i.e., age 70½. These standards are non-uniform by state, and several states purport to count the period backwards, presuming that an account is abandoned at age 70½ if there has been no activity within the prior three to five years. The treatment of Roth IRAs is also non-uniform, and state laws vary on whether age 70½ is a potential trigger for escheat.
The death of the IRA account owner is also a potential trigger for escheat.
To ensure that the state does not get your IRA account as unclaimed property be sure that you have listed beneficiaries on all IRA accounts!
Bottomline: If you are an IRA owner you will need to be extra vigilant to ensure that you are taking steps to avoid having your IRAs treated as inactive under an unclaimed property statute. To avoid escheating an IRA you should take steps such as logging into your IRA account (if you have access online) or contacting the IRA custodian at least every few months.