Financial advisor Cary Stamp, CFP®, based in Jupiter, FL, highlights the importance of knowing the recent changes in distribution requirements for Inherited IRAs.

TRANSCRIPT:
Hi, I’m financial adviser Cary Stamp, and I’d like to explain a little bit about a subject that I get a lot of questions on, and that subject is Inherited IRAs. And we’re talking about inherited IRAs that do not come from your spouse. They might come from your parent, your grandparent, your aunt or uncle or somebody else, but they’re not from your spouse. And why is this important? It’s important because if you do inherit an IRA from somebody that you’re not married to, you’ve got some new rules that you need to be aware of.

The first rule is that you have 10 years to withdraw the funds from your inherited IRA. Now you can withdraw all of the funds in the 10th year, you can withdraw all of the funds in the first year, or you can take a little bit out each year as you go along. There might be some mix as far as how you want to create a strategy in making these distributions. A lot of this will play into where you think your tax bracket and tax liability is going to be in future years.

So you’ve got 10 years to take the funds out of the inherited IRA. If you inherit a substantial sum, this could put you in a whole new tax bracket.

Something that you might want to think about as you’re doing tax planning and making distributions from inherited IRAs is taking a look at where your personal income tax liability is. Let’s assume that you inherit $500,000 from a relative or a family member. Well, you’ve got to take out essentially what amounts to $50,000 a year plus interest, over that 10 year period of time.

For many of you, if you’re earning a substantial salary and your spouse is earning a substantial salary, this extra 50 or so thousand dollars a year, is going to put you in a whole new tax bracket. So you want to talk to somebody that can help you plan a distribution strategy so that you’re taking these funds out in years where your income tax liability is lower. Or you’re doing a strategy that we call bunching deductions, which might mean that you’re making a big contribution to charity or you’re making a major purchase for your business. If you’re doing that in a particular year, then you may want to accelerate what comes out of this inherited IRA so that you can get the funds out within 10 years and pay as little tax as possible.

We have a calculator that specifically addresses these issues. If you’d like some help or some guidance, give us a call. I’m Cary Stamp, and this has been a Principled Wealth Moment….(read more)

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