Is there any provision by which IRA funds can be withdrawn for use for the final expenses [e.g. funeral costs, medical bills] for the now deceased account holder and the funds be taxable to the deceased account holder on the final tax return filed for the deceased account holder, rather than to the beneficiary who withdraws the funds? I apologize if this is a ridiculous question but I have not worked in the deposit area for a long time and much has changed since I last had anything to do with retirement accounts.

No, there is no such provision. From the moment of death, the IRA belongs to the beneficiary, not the decedent. If the beneficiary withdraws the funds, the funds are taxable to the beneficiary regardless of how they are used.

In some circumstances when the IRA is small and the final expenses are significant, it might be wise for the beneficiary to legally disclaim his interest in the IRA; i.e. refuse to accept it. If there were no contingent beneficiaries the funds would be payable to the decedent's estate which is liable for the final expenses. In that circumstance, the funds would be taxable to the estate, not the original beneficiary. (A disclamer is complete; i.e. they cannot say I only want this part.)

What is a valid disclaimer is a function of state law; the customer needs an attorney. Nevertheless, the document is neither complex nor lengthy and the fee should not be significant.

You are not the customer's attorney. Your advice should be limited to telling them to talk to an attorney.

Ken,

Thank you very much for your prompt response. My interest in this matter is two-fold. Since I am in the banking industry, even though I do not work with the deposit area, I do want to be aware of this matter. Secondly, with the very recent death of my mother, I find myself now in the position of being one of the inheritors of a small IRA account, and I wondered what the rules were. Fortunately, before her death a distribution had been made which took care of the required minimum distribution for 2013, so we do not have that aspect with which to contend. Thank you again for your assistance and expertise.