“What to do when you inherit an IRA.”

Hey Taxpayers, Tiffany Gonzalez CPA is back with a tax focused video for anyone that has inherited an IRA.

There are different rules for spouses and non spouses who inherit the IRA in regard to tax and timing of the withdrawal of funds. This is where having an amazing CPA is so valuable.

Tiffany Gonzalez CPA is going to go through the rules, and pitfalls she sees with her clients that have inherited an IRA.

So if you have inherited an IRA or know you will be, this video is for you!

Tune in and get your financial I.Q. up!

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Disclaimers & Disclosure:

This content is for education and entertainment purposes only. Tiffany Gonzalez CPA and Accounting to Scale are not providing Tax or Investment advice. The information is being presented without consideration of the financial circumstances of the taxpayer/investor, financial objectives or risk tolerance and may not be suitable for all taxpayers/investors. We don’t make any guarantees or promises as to results that may be obtained using our content. All investing involves risk, including risk of losing investment principal.

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LEARN MORE ABOUT: IRA Accounts

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When a loved one passes away, their assets may be passed on to their heirs through an inheritance. Among the most common assets that are inherited are individual retirement accounts (IRAs). Inheritances of IRAs come with certain rules and regulations that must be followed to avoid penalties and taxes. Here are some steps to take when you inherit an IRA:

1. Determine your relationship to the deceased account holder

Your relationship to the deceased account holder determines your options for handling the inherited IRA. If you are a spouse of the deceased account holder, you have more flexibility in managing the inherited IRA. You can choose to roll it over into your own IRA or keep it as an inherited IRA. If you are not a spouse, you must set up an inherited IRA and follow specific withdrawal rules.

2. Identify the type of IRA you inherited

There are two types of IRAs: traditional and Roth. Traditional IRAs are funded with pre-tax dollars and withdrawals are taxed as income. Roth IRAs are funded with post-tax dollars and withdrawals are tax-free. The type of IRA you inherited will affect your required minimum distributions.

3. Open an inherited IRA account

As a non-spouse beneficiary, you must establish an inherited IRA account and transfer the assets from the deceased account holder’s IRA into it. This account is separate from any other personal IRAs you may have. You must take your required minimum distributions (RMDs) based on your age and the life expectancy factor provided by the IRS.

4. Take your required minimum distributions

For non-spouse beneficiaries, the IRS requires RMDs to begin by December 31st of the year following the death of the account holder. Failure to take the RMD can result in a 50% tax penalty. In addition to the RMD, you may take additional distributions from the inherited IRA if necessary, but they will be taxed as income.

5. Consider consolidating the inherited IRA with your other IRAs

As a surviving spouse, you have the option to merge the inherited IRA with your existing IRA accounts. You can do a direct or indirect transfer, which will consolidate your retirement savings into one account. However, this is not an option for non-spouse beneficiaries.

In conclusion, inheriting an IRA can be a significant financial asset, but it comes with important responsibilities. You should take the time to understand the details of the inherited IRA, including any tax implications and required distributions. Consulting with a financial advisor or tax professional can help ensure that you are making informed decisions regarding your inheritance.