With an inherited IRA at our disposal, we’re wondering what’s the most tax efficient way to draw it down?

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An inherited IRA is a retirement account that is passed down to you from someone who has passed away. Inheriting an IRA can be a great financial asset, but it can also be overwhelming if you don’t know how to handle it properly. Here are some tips on how to manage an inherited IRA.

1. Know the Rules

The first thing you need to do is understand the rules of the IRA. The rules will depend on whether you inherited the IRA as a spouse or non-spouse. Spouses have more flexibility in terms of withdrawing money from the IRA, while non-spouse beneficiaries are typically required to take out a certain amount each year.

2. Choose the Right Withdrawal Option

As a non-spouse beneficiary, you will need to choose between two different withdrawal options: taking a lump sum payout or taking distributions over a set period of time. Taking a lump sum payout may seem like the most appealing option, but it may not be the best choice from a tax perspective. Taking distributions over time could help reduce your tax burden.

3. Keep Track of Your Withdrawals

If you choose to take distributions over a set period of time, you need to keep track of your withdrawals. You will be required to take out a certain amount each year, and if you fail to do so, you could incur a tax penalty.

4. Consider Converting to a Roth IRA

If you inherited a traditional IRA, you may want to consider converting it to a Roth IRA. In a Roth IRA, you pay taxes upfront, but you don’t have to pay taxes on withdrawals in the future. This could be beneficial if you expect to be in a higher tax bracket in the future.

5. Get Professional Help

Managing an inherited IRA can be complicated, and it’s important to get professional help. Talk to a financial advisor or tax professional to ensure that you are making the right decisions. They can help you understand the rules, choose the right withdrawal option, and make the most of your inherited IRA.

In conclusion, handling an inherited IRA can be a great opportunity for financial gain, but it’s important to understand the rules and make smart decisions. With the right guidance, you can ensure that your inherited IRA is set up to provide for you in the years to come.