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Have you received an Inherited IRA? These are the rules and deadlines you should know to avoid taxes and penalties….(read more)

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If you have inherited an IRA from a family member or a loved one, managing it can seem overwhelming at first. However, it’s crucial to know how to manage your inherited IRA because it can provide a significant source of retirement income for you in the future. In this article, we will discuss the steps you need to take to manage your inherited IRA effectively.

Step 1: Understand the IRA Distribution Rules

Inherited IRAs have different distribution rules than regular IRAs, and they depend on various factors, such as the age of the original IRA account owner, the relationship between the owner and the beneficiary, and more. In general, beneficiaries of inherited IRAs are required to start taking distributions within a year of the original account owner’s death.

Step 2: Choose Your Distribution Option

There are different distribution options available to beneficiaries of inherited IRAs. The most common options are:

1. Take a lump-sum distribution

2. Take required minimum distributions (RMDs) based on your life expectancy

3. Take equal distributions over a specific number of years

4. Take distributions as needed

Each option has its advantages and disadvantages, so it’s essential to work with a financial advisor to decide which option is best for you.

Step 3: Review Your Inherited IRA Investments

Depending on the original account owner’s investment choices, your inherited IRA may include a wide range of assets, including stocks, bonds, mutual funds, and more. It’s crucial to review your account’s investment choices and ensure that they align with your investment objectives and risk tolerance.

Step 4: Keep Track of Your RMDs

If you choose to take RMDs from your inherited IRA, it’s crucial to keep track of the distributions to ensure that you withdraw the correct amount. Failure to take RMDs or taking less than the required amount may result in penalties.

Step 5: Work with a Financial Advisor

Managing an inherited IRA can be complex, so working with a financial advisor can provide insights into investment strategies and distribution options. A financial advisor can also help you understand how your inherited IRA fits into your overall financial plan.

Conclusion

Managing an inherited IRA takes time, effort, and understanding of the distribution rules and options available. By following the steps outlined above and working with a financial advisor, you can ensure that your IRA provides a significant source of retirement income for years to come.