What To Do If You Inherit An IRA Account
Dealing with financial matters in the wake of a loved one’s death can be tremendous challenge. But, if you’re the beneficiary and are inheriting an IRA retirement account, there are several important rules in place you’ll need to pay close attention to in order to avoid substantial taxes and penalties. Here’s what you need to know.
Inheriting An IRA From A Spouse
If you are inheriting a traditional IRA from your spouse, you have two options:
- Remain a named beneficiary, OR
- Add the assets to an existing retirement account
Adding the money to your own account is the simpler option. You can either retitle the IRA so you’re listed as the owner instead of your spouse, or you can transfer the funds to a separate IRA that you have already set up.
As long as you transfer any distributions to a new account in your name within sixty days, you won’t be taxed on the distribution, and the money can continue to grow tax-deferred in your account as if it had been yours all along.
However, if you’re under fifty nine and a half years old and you want to use the money immediately, you’re actually better off remaining as a named beneficiary. But this means you’ll be subject to the same rules as inheriting children, siblings, or other named beneficiaries.
Inheriting From Someone Other Than A Spouse
Unfortunately, things are a little more complicated when inheriting an IRA from a parent, sibling, other relative, or friend. The two major differences are:
- You will not be allowed to transfer the assets from account you inherit into your own retirement account. Instead, you’ll have to make a new inherited IRA account in your name and transfer the funds to this account. AND
- You can’t make new contributions to this account, and you’ll be required to take minimum distributions by Dec. 31 of the year following the original owner’s death.
You also won’t have many choices when it comes to how you take the distributions. You can either take a lump-sum payment, or take the money over a five year distribution period. There won’t be any required minimum distributions if you choose option two, but all the money will need to be withdrawn from the account by the end of five years.
Getting Help With Inherited IRA Accounts
If you have recently inherited an IRA or other type of retirement account, it may be worth your time to speak with an experienced financial planner.
Navigating the complex rules and tax laws surrounding inherited investments and retirement accounts can be especially challenging while trying to also manage all the emotions and other arrangements that come with the loss of a loved one.
Please contact our offices at your convenience to learn more about how we can help safeguard your inherited accounts and help you plan for a successful financial transition.
Free Financial Planning Consultation
Would you like to speak with a financial planner about your specific needs? If so, we'd love to hear from you! You can book a free phone consultation with us right now by clicking "Schedule An Appointment".
Once you've picked an available day and time, and provided your contact information, your appointment will be booked. If you have any questions, or need to change your appointment, please call us at (415) 696-7600. We look forward to speaking with you.
Choose a day and time
Provide your contact info
Get professional advice