The 2019 SECURE Act drastically changed how IRAs are inherited – how much will this affect you?…(read more)

LEARN MORE ABOUT: IRA Accounts

TRANSFER IRA TO GOLD: Gold IRA Account

TRANSFER IRA TO SILVER: Silver IRA Account

REVEALED: Best Gold Backed IRA

Inheriting an IRA can be a tricky situation, and it’s important for beneficiaries to understand the rules and limitations that come with receiving this type of inheritance. The rules for inheriting IRAs are different from those for other assets, and there are specific requirements that must be followed in order to avoid costly penalties.

The rules regarding inherited IRAs were tightened in 2019 with the passage of the Setting Every Community Up for Retirement Enhancement (SECURE) Act. The Act eliminated the “stretch” provision, which allowed non-spouse beneficiaries to stretch out required minimum distributions over their own lifetimes, potentially allowing the funds to grow tax-deferred for an extended period of time.

Under the new rules, non-spouse beneficiaries who inherit an IRA after December 31, 2019, are generally required to withdraw all the funds within 10 years of the original account holder’s death. There are some exceptions to this rule, such as for disabled or chronically ill beneficiaries, minor children, and beneficiaries who are less than 10 years younger than the original account owner. Spouses who inherit an IRA still have the option to roll the funds into their own IRA or take distributions based on their own life expectancy.

The elimination of the stretch provision means that beneficiaries have more limited options for managing their inherited IRAs. They must carefully consider their tax obligations and financial needs, and they may want to consult with a financial advisor to determine the best course of action.

One option for beneficiaries is to take the entire distribution within 10 years, but this could result in a significant tax burden, especially if the funds are large. Another option is to take regular distributions over the 10-year period, spreading out the tax liability. Beneficiaries also have the option to wait until the end of the 10-year period to take the entire distribution, but they should be aware of the potential tax implications and plan accordingly.

It’s important for beneficiaries to be proactive in managing their inherited IRAs and to understand the rules and limitations that apply. Failing to comply with the requirements can result in penalties and additional taxes. Beneficiaries should also be mindful of potential tax implications and consider consulting with a tax professional to make informed decisions regarding their inherited IRAs.

Inheriting an IRA can be a complex and potentially overwhelming process, especially with the recent changes in the rules. It’s important for beneficiaries to educate themselves about their options and to seek guidance from financial and tax professionals to ensure that they make the best decisions for their individual circumstances. With careful planning and attention to the rules, beneficiaries can make the most of their inherited IRAs while minimizing their tax liabilities.