Since a new law came into effect in 2020, IRAs inherited from a non-spouse have been subject to less favorable rules. Notably, the new law says these accounts must be withdrawn within 10-years (with a few exceptions) Notably, the majority of inherited IRAs are comprised of pre-tax dollars which means any distribution will increase a tax-payers income. Some people would rather defer the taxes because they may be still working and already paying a high marginal tax rate. One strategy for deferring the tax bill is INDIRECTLY shifting dollars from the INHERITED IRA to a 401k plan. In this video we discuss the strategy and who it may be available to.

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Ted Erhart, CFP®
Financial Planner
Anoka, Minnesota
www.norrislakeretirement.com

Norris Lake Financial Planning is a SEC registered investment advisor able to conduct advisory business in states where it is registered, exempt or excluded from registration. All contents contained herein should not be construed as an offer or solicitation for investment advice or for the offer or sale of any security, insurance or other investment product. Data contained here is obtained from believed reliable sources, however, cannot be guaranteed. Investments contain a risk of loss. Please consult a qualified legal, tax or accounting professional before implementing any investment or strategy discussed….(read more)

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If you have recently inherited an IRA from a loved one, you may be wondering what your options are for managing this asset. One option that many people are not aware of is the ability to shift the inherited IRA funds into your 401k – tax free.

When someone passes away and leaves you an IRA, you have a few different options for how to handle this asset. You can choose to take a lump sum distribution, set up an inherited IRA account, or transfer the funds into your own retirement account.

Transferring the funds into your 401k is a smart financial move for a few reasons. First and foremost, it allows you to continue to grow the funds in a tax-deferred account. By moving the money into your 401k, you can avoid paying taxes on the funds until you start making withdrawals in retirement.

Additionally, consolidating the inherited IRA into your 401k can simplify your financial situation. Rather than managing multiple retirement accounts, you can streamline your assets into one account, making it easier to track and manage your investments.

To make this transfer tax free, you must follow the IRS rules for moving funds between retirement accounts. The key is to complete a direct rollover, where the funds are transferred directly from the inherited IRA custodian to your 401k plan administrator. By doing a direct rollover, you avoid triggering any taxes or penalties on the transfer.

Before making any decisions about what to do with an inherited IRA, it is important to consult with a financial advisor or tax professional to discuss your options and determine the best course of action for your individual situation. They can help you understand the tax implications and potential benefits of transferring the funds into your 401k.

In conclusion, if you have inherited an IRA and are looking for a tax-efficient way to manage the funds, consider shifting the assets into your 401k. By doing so, you can take advantage of the tax benefits of a 401k and simplify your retirement savings strategy. Just be sure to follow the IRS rules for transferring funds between accounts to ensure a tax-free rollover.