Mike and Adam sit down to talk about inherited IRA’s. Receiving large piles of cash from distant relatives is not all it’s cracked up to be. There are a number of rules that have to be followed and plenty of taxes that need to be paid. The guys also dig into how these rules changed with the SECURE Act a few years ago.

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Inheriting an IRA can be a significant financial asset for beneficiaries. However, there are some important considerations to keep in mind when it comes to inherited IRAs. Recently, financial advisors Adam and Mike discussed the nitty-gritty on inherited IRAs and what beneficiaries should know.

Firstly, they discussed the different types of inherited IRAs that exist. There are two primary types; spousal and non-spousal inherited IRAs. Spousal inherited IRAs are generally easier to manage, as the spouse can simply roll the inherited IRA over into their existing account, allowing them to manage the funds as part of their own retirement strategy. Non-spousal inherited IRAs, on the other hand, require the beneficiary to open a new account to manage the funds.

Adam and Mike went on to discuss the different rules that apply to inherited IRAs. One of the most important rules is that beneficiaries must take required minimum distributions (RMDs) based on their age and the balance of the inherited IRA. This means that beneficiaries may need to withdraw a certain percentage of the funds each year, whether they need the funds or not, to avoid penalties.

They also discussed the tax implications of inherited IRAs. Inherited IRAs are subject to income tax, meaning that beneficiaries will need to pay taxes on any withdrawals they make from the account. However, the type of IRA and the age of the deceased account holder can impact the tax implications. For example, inherited traditional IRAs are generally subject to income tax, while inherited Roth IRAs are not.

Another important factor to consider when it comes to inherited IRAs is estate planning. It’s essential to name a beneficiary for an IRA to help ensure that the funds are distributed according to the deceased account holder’s wishes. Additionally, if a beneficiary is named, the account may be able to avoid probate, which can be a lengthy and expensive process.

In summary, inherited IRAs can be an excellent financial asset for beneficiaries, but they come with specific rules and considerations that must be kept in mind. Beneficiaries should be aware of different types of inherited IRAs, rules related to RMDs and taxes, and the importance of estate planning. Contacting a financial advisor can be a helpful step in managing inherited IRAs and maximizing their benefits.