As a Personal Family Lawyer, I am often asked to help people who inherit a retirement account. The action you need to take with an inherited IRA depends upon your unique situation; the IRS has rules for each and recently announced that they will be cracking down on taxpayers who make mistakes with inherited IRAs. Here are some inherited IRA scenarios and options for each:
- IF THE ACCOUNT YOU INHERIT WAS A 401(K) OR TRADITIONAL IRA AND THE DECEDENT WAS AT LEAST 70 ½ YEARS OLD
Contact the financial institution that holds the account to determine if the decedent had already taken the required minimum distribution for the year they died. If they did not, you will need to do so.
- IF YOU ARE THE SPOUSE OF THE DECEASED ACCOUNT OWNER
You can roll an inherited IRA into your own IRA to postpone taking distributions until you turn 70 ½. If you take distributions before you turn 59 ½, you may be subject to early withdrawal penalties. You can also leave it where it is and postpone taking the required minimum distribution until your deceased spouse would have turned 70 ½.
- IF YOU ARE NOT THE SPOUSE
You must first re-title the account to name you as the beneficiary. You will then be required to start taking required minimum distributions, which can be stretched out over your lifetime, beginning by Dec. 31 of the year following the death of the account owner.
- IF THERE ARE SECONDARY BENEFICIARIES
You have the option of disclaiming the inherited account, which will allow it to pass directly to the secondary beneficiaries. This is usually done to avoid creditors or to minimize income or estate taxes.
- IF THERE ARE MULTIPLE BENEFICIARIES
You are allowed to split the account into separate IRAs for each beneficiary.
To learn how we can help you, contact us today at 210.410.8013 for a 15 minute discovery call.
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The content is sourced from Personal Family Lawyer for use by Personal Family Lawyer firms, a source believed to be providing accurate information. This material was created for educational and informational purposes only and is not intended as ERISA, tax, legal, or investment advice. If you are seeking legal advice specific to your needs, such advice services must be obtained on your own separate from this educational material.