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If you’ve become the beneficiary of an IRA or other retirement account, it’s important to know your options. You can take the money out in one lump sum. This requires opening an account called an Inherited IRA in your name for correct IRS reporting. That lump sum may be taxable depending on whether the original contributions were pre- or post-tax.
Or you can open an Inherited IRA and leave it alone to grow tax deferred. You can’t make additional contributions and must start taking Required Minimum Distributions based on when the deceased would have turned 73. You must also liquidate the account in ten years. With this option, you can name your own beneficiary to pass it on. If your spouse left you the account, you’re allowed to roll those assets into your own retirement account and follow your account’s distribution rules.
You could also disclaim the account, or not accept it. The assets can then pass on to alternate beneficiaries. If you disclaim, it must be done before taking possession of the account, and within nine months of the original owner’s death.
To learn more about what to do with an inherited retirement account, please give us a call today.
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Inheriting an Individual retirement account (IRA) can be a great financial asset for beneficiaries. While it may seem like a daunting task at first, as a beneficiary, there are several options available to make the most of your inherited IRA. From rolling over the inherited IRA to taking distributions, here’s what you can do with an inherited IRA.

Firstly, it is important to understand that there are two types of inherited IRAs: traditional and Roth IRAs. Traditional IRAs are tax-deferred, meaning that taxes are paid upon withdrawal, while Roth IRAs are tax-free. The type of inherited IRA you have will dictate how you handle it.

One option is to roll over the inherited IRA. This involves transferring the funds from the inherited IRA to your own IRA account. This option is only available if you are the spouse of the deceased account holder. This allows you to continue the tax-deferred or tax-free growth of the IRA. An important thing to keep in mind when rolling over a traditional IRA is that the required minimum distributions (RMDs) will still apply once you turn 72 years old.

If you are not the spouse of the deceased account holder, you can still rollover the inherited IRA, but it must be done as a trustee-to-trustee transfer. This means the funds go directly from the deceased account holder’s account to your own IRA account and avoids any penalties or taxes.

Another option is to take distributions from the inherited IRA. This allows you to access the funds in the IRA but can come with tax consequences. If you inherit a traditional IRA, you will have to pay taxes on any distributions you take. Additionally, if you take a lump-sum distribution, it could push you into a higher tax bracket, which can result in a larger tax bill. However, if you are under age 59 ½ you may also face penalties for early withdrawal in addition to any taxes owed.

With a Roth IRA, distributions can be tax-free if certain conditions are met. For example, if the account has been open for at least five years and you’re taking the distribution because of a qualifying reason, then you won’t have to pay taxes on the distribution.

In some cases, you may want to consider disclaiming the inherited IRA. This involves telling the IRA custodian that you do not want to inherit the account. This may be the case if you do not need the funds, or if it would push you into a higher tax bracket.

In conclusion, an inherited IRA can be a valuable financial asset. Whether you decide to roll over the inherited IRA to your own account, take distributions, or disclaim the inherited IRA, there are several options available to you. It’s important to carefully consider your options and consult with a financial advisor to make the best decision for you.