@Tbsfca
I don’t know the correct answer here, but I don’t believe that @Anonymous_ is correct. Disclaiming an IRA does not make it a gift. Disclaiming the inheritance nullifies the designation of the first person as a beneficiary. If the beneficiary designation is nullified, the IRA should go to either to the estate or to the contingent beneficiaries.
Some other experts who might know more are @dmertz , @Hal_Al or @macuser_22
Disclaiming an inheritance has to be done correctly under both federal and state law. It may be that you met the federal requirements but not the state requirements. Depending on the dollar amount, it sounds like you need to hire an enrolled agent and have them work with the IRA custodian for you.
It may be helpful to remind you here that the rules for inheriting an IRA have changed. You can’t distribute an inherited IRA over your entire lifetime. All inherited IRAs (unless inherited by a spouse) must be distributed within 10 years. You might be in a situation where the children have no other taxable income or are in the 12% tax bracket, while their parents might be in the 22% tax bracket, so disclaiming the IRA could result in some tax savings. But there is no longer a “stretch” option. So you might also want to talk to a financial planner to see whether it is worth fighting over the disclaimer issue. It may be that you would be accomplishing less than you thought you would, so that it is not actually worth fighting for.
