What is the difference between a Spouse Beneficiary and a Non-Spouse Beneficiary? What should you expect if you inherited an IRA after 2020? What factors should you consider when deciding on a beneficiary prior to the Secure Act 2.0?

In this video, John Bowens, Director, Head of Education and Investor Success at Equity Trust Company, explains the ins and outs of Beneficiary IRAs, also known as Inherited IRAs.

Can you Self-Direct your Beneficiary IRA/Inherited IRA? The answer is yes!

Download our guide to Self-Directed IRA Rules and Regulations:

Timestamps

0:00 Intro

0:49 What is a Beneficiary IRA/Inherited IRA?

1:23 What are the three classifications of beneficiaries to retirement plans?

2:11 Spouse Beneficiary vs. Non-Spouse Beneficiary

7:29 What is a Non-Designated Beneficiary?

8:20 What to know if you inherited an IRA prior to 2020

11:00 Inherited IRA rules after the Secure Act

13:28 What is an eligible designated beneficiary?

15:36 How are required minimum distributions dictated?

Equity Trust Company is a directed custodian and does not provide tax, legal, or investment advice. Any information communicated by Equity Trust Company is for educational purposes only and should not be construed as tax, legal, or investment advice. Whenever making an investment decision, please consult with your tax attorney or financial professional….(read more)

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As you may know, an IRA (Individual retirement account) is a popular way to save for retirement. While most people think of the person contributing to an IRA as the owner, there is also the option of setting up a Beneficiary IRA. This can be a useful option for those who have inherited an IRA or for those who want to leave their IRA to someone else upon their passing. Here’s what you need to know about Beneficiary IRAs.

What is a Beneficiary IRA?

A Beneficiary IRA is an individual retirement account that is set up for the purpose of being inherited by someone after the original account owner passes away. The beneficiary can be a spouse, child, grandchild, or any other designated beneficiary.

What Are the Rules for Beneficiary IRAs?

The rules for Beneficiary IRAs vary depending on the relationship between the beneficiary and the original account owner. For instance, if the beneficiary is the spouse of the original account owner, they have the option of rolling the funds into their own IRA, which can provide benefits such as avoiding Required Minimum Distributions (RMDs) until the age of 72.

If the beneficiary is someone other than the spouse, such as a child or grandchild, they will need to start taking RMDs based on their life expectancy by December 31st of the year following the original account owner’s passing. Failure to take RMDs can result in significant penalties.

What Are the Tax Implications of a Beneficiary IRA?

The tax implications of a Beneficiary IRA depend on several factors, including the relationship between the beneficiary and the original account owner, the type of IRA, and the age of the beneficiary.

For instance, if the beneficiary is the spouse of the original account owner and rolls the funds into their own IRA, they will need to pay taxes on any distributions as they are made. If the beneficiary is not the spouse, they will need to pay taxes on any distributions at their regular income tax rate.

The Bottom Line

A Beneficiary IRA can be a useful option for those who want to pass on their retirement savings to someone else. However, it’s important to understand the rules and tax implications before setting one up. If you have questions about Beneficiary IRAs or any other retirement planning options, consider speaking with a financial advisor.