The tax consequences of inherited assets can get complicated! In this video we’ll give an overview of taxation for inherited retirement accounts, including IRA’s….(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

Inherited IRA Taxation: What You Need to Know

Inheriting an Individual retirement account (IRA) from a loved one can be a bittersweet experience. While the passing of a family member or friend may be a difficult time, inheriting an IRA can provide financial security and potentially help secure your own retirement.

However, it’s important to understand how inherited IRAs are taxed, as the rules and regulations can vary depending on your relationship to the original account holder and your distribution options.

When you inherit an IRA, the tax implications will depend on whether the account is a traditional IRA or a Roth IRA, as well as your relationship to the deceased account holder. Here are some key points to keep in mind:

Traditional IRA:
– If you inherit a traditional IRA from a non-spouse, you will need to start taking required minimum distributions (RMDs) by December 31 of the year following the original account holder’s death. The amount of the RMD will be based on your life expectancy, as calculated by the IRS.
– These distributions are typically subject to income tax, as they are considered taxable income. The tax rate will depend on your individual tax bracket.
– If you inherit a traditional IRA from a spouse, you have the option to treat the account as your own, meaning you can roll it over into your own IRA and delay taking RMDs until you reach age 72.

Roth IRA:
– If you inherit a Roth IRA, the distributions are generally tax-free, as contributions to a Roth IRA are made with after-tax dollars. However, there may be tax implications if the account was converted from a traditional IRA within the last five years.
– Like with a traditional IRA, if you inherit a Roth IRA from a non-spouse, you will need to start taking RMDs by December 31 of the year following the original account holder’s death.
– If you inherit a Roth IRA from a spouse, you have the option to treat the account as your own and continue to enjoy tax-free growth and distributions.

It’s important to note that the rules and regulations surrounding inherited IRAs can be complex, so it’s advisable to consult with a financial advisor or tax professional to ensure you understand your options and obligations.

In conclusion, inheriting an IRA can be a valuable asset, but it’s crucial to understand the tax implications and rules surrounding distributions. By educating yourself and seeking professional guidance, you can make informed decisions that will help you maximize the benefits of your inheritance.