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At Thrive Wealth Management we are CERTIFIED FINANCIAL PLANNER™ professionals with a mission to help you make better financial decisions by simplifying your complex financial life.

Thrive will consider your entire financial picture, lay out your options, and partner with you to help make the right decisions.

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Audubon, PA 19403

350 Sentry Parkway
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Blue Bell, PA 19422

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LEARN MORE ABOUT: IRA Accounts

TRANSFER IRA TO GOLD: Gold IRA Account

TRANSFER IRA TO SILVER: Silver IRA Account

REVEALED: Best Gold Backed IRA

An Inherited IRA refers to an individual retirement account that is passed down to a beneficiary after the original account holder’s death. It allows the beneficiary to continue receiving the tax benefits and potentially grow the inherited assets over time.

When an individual inherits an IRA, they have several options for handling the account. The most common options include taking a lump-sum distribution, setting up an Inherited IRA and taking required minimum distributions (RMDs), or disclaiming the assets and allowing them to pass to the contingent beneficiary. Each option has its own implications for taxes and potential growth of the assets, so it’s important for the beneficiary to carefully consider their choices.

If the beneficiary chooses to take a lump-sum distribution, they will receive the entire value of the IRA in one payment. However, this method may result in a significant tax bill, as the distribution will be taxed as ordinary income in the year it is received. Additionally, taking a lump sum may impact the beneficiary’s eligibility for certain tax credits and deductions.

Setting up an Inherited IRA allows the beneficiary to receive RMDs over their lifetime, based on their life expectancy and the value of the inherited assets. This option can provide a steady stream of income while allowing the remaining assets to continue growing tax-deferred. However, the beneficiary will need to make sure they begin taking RMDs by the required deadlines to avoid potential tax penalties.

In some cases, a beneficiary may choose to disclaim the inherited assets, allowing them to pass to the contingent beneficiary named on the original IRA. This option is typically chosen when the primary beneficiary does not need the assets or would prefer to pass them on to someone else, such as a younger family member.

It’s worth noting that Inherited IRAs have different rules and tax implications than traditional or Roth IRAs. For example, a non-spouse beneficiary cannot roll the inherited IRA assets into their own IRA, and they must begin taking RMDs by December 31st of the year following the original account holder’s death. Additionally, the tax treatment of Inherited IRAs can vary based on the type of IRA and the age of the original account holder at the time of their death.

For individuals who inherit an IRA, it’s important to carefully consider their options and consult with a financial advisor or tax professional to understand the implications of each choice. By making informed decisions, beneficiaries can maximize the tax benefits and potential growth of their Inherited IRA assets.