What Are the Dormancy and Escheatment Rules for IRAs?

The dormancy and escheatment rules for IRAs vary by state, as they do for all financial assets subject to escheatment. This means, whatever state you live in may impact the terms of your IRA.

However, regardless of the state, the dormancy period for IRAs is slightly different than for other types of assets. It is especially important to be aware of the terms of your IRA and the specific escheatment laws that apply to your state of residence.

Be aware that IRAs impacted by dormancy must be subject to required minimum distributions (RMDs) to be impacted.

Key Takeaways

  • Typically, dormancy and escheatment rules for IRAs differ state by state.
  • When a person's assets are inactive (often after death) over a specific period, the assets can be seized by the state.
  • The dormancy period for some assets is typically three to five years, but the dormancy period for IRAs is generally longer.
  • Financial institutions are required by law to report inactivity on an account holder's IRA if the required minimum distributions are not occurring on the account.

What Is Escheatment?

When a financial account becomes dormant, meaning there has been no activity for an extended period of time, financial institutions are required to report the inactivity to the state.

Assets that have remained inactive for a certain number of years can be declared abandoned and claimed by the state, assuming the account owner cannot be contacted. Sometimes they have been abandoned because the account owner has died, sometimes because the owner has become ill. It is not common for IRAs to become dormant if wills and trusts are up to date and if account owners have attached beneficiaries to the IRA themselves.

This process is called escheatment. The period of inactivity that must pass before the state can assume ownership is called the dormancy period, and it is typically between three and five years, depending on state law, which varies around the country.

Roth IRAs, however, are often not subject to escheatment, because they typically do not carry RMD requirements.

How the Escheatment of IRAs Works

Because IRAs are meant to sit relatively inactive for long periods during the accumulation phase—which is typically the owner’s working years, during which the account accrues interest—they are not subject to escheatment in the same way as other assets.

Rather than being vulnerable to a state claim after a few years of inactivity, the dormancy period for IRAs cannot begin until the account owner reaches the age at which one must begin taking required minimum distributions.

The minimum distribution age was set at 72 by the SECURE Act, for 2020 and going forward. It remains 70½ for those who turned that age during 2019 or in a prior year.

If state law sets the dormancy period at three years, for example, an IRA can be escheated if the account owner reaches age 75 without taking any distributions or logging any activity with the financial institution, and the institution is unable to contact the owner at the address listed on the account.

What Happens to Abandoned IRA Accounts?

If an Individual Retirement Account remains dormant after distributions are required, it may be claimed by the state where the IRA is located. This usually happens if the account owner dies or is no longer able to handle their finances. The state will attempt to contact the owner of the account or their beneficiaries in order to turn over the funds.

What Happens If I Forget About an IRA?

If you lose track of an IRA, you may be able to find it through the institution where you opened it. This may require your social security number. If the contents of the account have already escheated to the state, you can also search that state's unclaimed funds database.

What Happens to My IRA If I Die Before Retirement?

When the owner of an IRA account dies, the account is passed on to the named beneficiary for that account, usually a surviving spouse or child. That beneficiary can then keep the IRA on its original terms or roll it over. There may be additional tax implications to an inherited IRA, so it is important to research the law carefully before making a decision.

The Bottom Line

When there is no activity on a financial account for an extended time period it is considered dormant. In this state it can be declared abandoned and be claimed by the state. This process is called escheatment and the rules vary depending on the state, though IRAs have slightly different rules because they are meant to be inactive for long periods of time.

Article Sources
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  1. U.S. Securities and Exchange Commission. "Investor Bulletin: The Escheatment Process."

  2. U.S. Securities and Exchange Commission. "Escheatment by Financial Institutions."

  3. Internal Revenue Service. "Retirement Plan and IRA Required Minimum Distributions FAQs."

  4. North Carolina Department of State Treasurer. "Guide To Unclaimed Property Financial Institutions & Select Financial Instruments," Page 3. 

  5. Internal Revenue Service. "Retirement Plan and IRA Required Minimum Distributions FAQs."

  6. USA.gov. "Unclaimed Money."

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