Inherited IRA

A brief look at some of the ins and outs of inherited IRAs

When a loved one leaves you an IRA in their will, they’re passing on a financial legacy for your future. It’s certainly a loving and thoughtful act. Given the emotional circumstances, though, you aren’t likely to be thinking about things like IRA rollovers and distribution. But when you’re ready to make the most of what’s been left to you, it’s helpful to know a little about the unique rules that apply to an inherited IRA.

It’s a slightly different ball of wax

Here’s just one example: with your own IRA, you can generally take the money out and redeposit it into another IRA within 60 days, with no penalty. But that may not be the case for an inherited IRA. Any money that you move must be from one IRA custodian to another (or what’s called a “trustee-to-trustee” transfer). In addition, different rules apply if your inherited IRA comes from a spouse versus a parent or anyone else. Make sure you’re aware of any restrictions before you take action.

Follow the paper trail

When it comes to an inherited IRA, the beneficiary form on file with the custodian of the IRA, is the final word on who gets what and how it can be distributed. This document is a must-have and helps ensure your standing as the rightful heir. Without one, you’re at the mercy of the IRA custodian’s default policy regarding inheritance.

Distributions can be tricky

There can be many quirky rules that apply to distributions of an inherited IRA. Did the account holder reach age for taking required minimum distributions (i.e., age 70½, if he or she was born before July 1, 1949, or age 72, if he or she was born after June 30, 1949)? It matters. Did the estate pay an estate tax? That’s important, too. There could even be some tax considerations for the beneficiary regarding the timeframe around withdrawals from an inherited IRA. As always, it’s smart to talk to a financial professional before you make any decisions. And we’re always here to help to determine which options are available to help you.

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This material is provided for general and educational purposes only; it is not intended to provide legal, tax or investment advice. All investments are subject to risk.

Prior to any IRA rollover, carefully consider the benefits of existing and potentially new retirement accounts and any differences in features, costs and tax implications. There may also be tax consequences associated with the transfer of assets. Rollover assets may be subject to an IRS 10% premature distribution penalty tax. We recommend that you consult an independent tax, legal or financial professional for specific advice about your individual situation.

The tax information herein is not intended to be used, and cannot be used by any taxpayer, for the purpose of avoiding tax penalties. Taxpayers should seek advice based on their own particular circumstances from an independent tax advisor.