We viewed a webinar on the new Illinois unclaimed property law. The speaker stated that IRAs can be treated as active accounts after the owner turns 70½, when the IRAs are in distribution. Is that true? The law seems unclear.

Yes, we believe that individual retirement accounts (IRAs) should be treated as active accounts after the owner reaches the age of 70½, provided your bank has evidence that the IRA owner is receiving IRA distributions or otherwise has “indicated an interest” in the IRA.

The Illinois Revised Uniform Unclaimed Property Act (Illinois RUUPA) requires inactive tax-deferred retirement accounts to be reported and remitted to the Treasurer on the later of:

(1) Three years after the date that a communication is returned undelivered (RPO) or, if re-sent within thirty days, after the second RPO is returned undelivered; or

(2) Three years after the apparent owner reaches the age of 70½ years, or one year after the date of mandatory distribution following the apparent owner’s death, whichever is earlier.

Importantly, even if the apparent owner has reached the age of 70½ years, the IRA should never be treated as inactive if the owner has made an “indication of interest” in the IRA. There are several actions that count as indications of interest in an IRA account, rendering it “active,” most commonly when the IRA’s apparent owner is receiving distributions from the account. Other actions that are indications of interest include when the customer has made a written communication with your bank regarding the account, when an oral communication has been made with respect to the account (provided your bank “contemporaneously makes and preserves a record” of the oral communication), or when there is activity by the customer on another account at the bank that shares the same address as the one for the IRA account. If your bank can show that an IRA’s apparent owner has indicated an interest in the account, the IRA should be treated as an active account.

Note, however, that when IRA distributions are made by recurring ACH transfers, your bank may not treat the recurring ACH transactions by themselves as indications of interest on the IRA account. The Illinois RUUPA does not treat automatically recurring ACH transfers as indications of interest. If IRA distributions are made through recurring ACH transfers, your bank will need to demonstrate that there has been some other indication of interest in the IRA, as discussed above.

For resources related to our guidance, please see:

Illinois RUUPA, 765 ILCS 1026/15-202 (“When tax-deferred retirement account presumed abandoned. (a) Subject to Section 15-210, property held in a pension account or retirement account that qualifies for tax deferral under the income-tax laws of the United States is presumed abandoned if it is unclaimed by the apparent owner after the later of:

(1) 3 years after the following dates:

(A) except as in subparagraph (B), the date a communication sent by the holder by first-class United States mail to the apparent owner is returned to the holder undelivered by the United States Postal Service; or

(B) if such communication is re-sent within 30 days after the date the first communication is returned undelivered, the date the second communication was returned undelivered by the United States Postal Service; or

(2) the earlier of the following dates:

(A) 3 years after the date the apparent owner becomes 70.5 years of age, if determinable by the holder; or

(B) one year after the date of mandatory distribution following death if the Internal Revenue Code requires distribution to avoid a tax penalty and the holder:

(i) receives confirmation of the death of the apparent owner in the ordinary course of its business; or

(ii) confirms the death of the apparent owner under subsection (b).”)

Illinois RUUPA, 765 ILCS 1026/15-210(b) (“Under this Act, an indication of an apparent owner’s interest in property includes: . . . (3) presentment of a check or other instrument of payment of a dividend, interest payment, or other distribution, or evidence of receipt of a distribution made by electronic or similar means, with respect to an account, underlying security, or interest in a business association; . . .”)

Illinois RUUPA, 765 ILCS 1026/15-210(b) (“Under this Act, an indication of an apparent owner’s interest in property includes: (1) a record communicated by the apparent owner to the holder or agent of the holder concerning the property or the account in which the property is held; . . .”)

Illinois RUUPA, 765 ILCS 1026/15-210(b) (“Under this Act, an indication of an apparent owner’s interest in property includes: . . . (2) an oral communication by the apparent owner to the holder or agent of the holder concerning the property or the account in which the property is held, if the holder or its agent contemporaneously makes and preserves a record of the fact of the apparent owner’s communication; . . .”)

Illinois RUUPA, 765 ILCS 1026/15-210(b) (“Under this Act, an indication of an apparent owner’s interest in property includes: . . . (5) a deposit into or withdrawal from an account at a financial organization, except for a recurring Automated Clearing House (ACH) debit or credit previously authorized by the apparent owner or an automatic reinvestment of dividends or interest; . . .”)

Illinois RUUPA, 765 ILCS 1026/15-210(f) (“If the apparent owner has another property with the holder to which Section 201(6) applies, then activity directed by an apparent owner in any other accounts, including loan accounts, at a financial organization holding an inactive account of the apparent owner shall be an indication of interest in all such accounts if:

(A) the apparent owner engages in one or more of the following activities:

(i) the apparent owner undertakes one or more of the actions described in subsection (b) of this Section regarding any account that appears on a consolidated statement with the inactive account;

(ii) the apparent owner increases or decreases the amount of funds in any other account the apparent owner has with the financial organization; or

(iii) the apparent owner engages in any other relationship with the financial organization, including payment of any amounts due on a loan; and

(B) the foregoing apply so long as the mailing address for the apparent owner in the financial organization’s books and records is the same for both the inactive account and the active account.”)