The IRA's beneficiaries are set on Sept. 30 of the year following the death of the IRA owner. Normally, heirs get to take distributions from inherited IRAs over their lifetimes. But if just one beneficiary of the account isn't an individual, the IRA has to be cleaned out within five years for all beneficiaries. The problem can occur when the owner names a charity or college as one of the beneficiaries.
If the charity, school, etc., is paid off by Sept. 30, the remaining individual beneficiaries can take distributions over their lives, enjoying more tax free buildup inside the IRA.