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Inheriting an IRA can be a great way to receive a significant financial windfall, but it can also be a source of financial stress if you don’t understand the rules. To help you avoid costly mistakes, here’s a look at why you should pay attention to your Inherited IRA in 2023.

The biggest mistake that you can make with your Inherited IRA is not taking any action. If you don’t take the right steps, you could be hit with a hefty penalty and tax bill. This is because the IRS requires that you begin taking distributions from your Inherited IRA by December 31, 2023. If you don’t, you could be hit with a 50% penalty on the amount that you should have withdrawn.

To avoid this mistake, you need to understand how Inherited IRAs work. If you inherit an IRA, the IRS considers the account to be in your name, and you are responsible for any taxes that are due on the account. You can either take the distributions yourself or you can name a beneficiary to receive the distributions. If you name a beneficiary, the distributions will be paid to them instead of you.

You also need to be aware of the different rules for different types of Inherited IRAs. For example, if you inherit a traditional IRA, you have the option to either take the distributions yourself or name a beneficiary. If you inherit a Roth IRA, however, you must take the distributions yourself.

Finally, you need to understand the tax implications of taking distributions from your Inherited IRA. Depending on the type of account, you may be subject to income tax on the distributions. You should also be aware that there are other tax implications, such as the amount of estate taxes that may be due.

In conclusion, if you have an Inherited IRA, you need to make sure that you understand the rules and take the necessary steps to avoid costly mistakes in 2023. By understanding the rules and taking the appropriate steps, you can save yourself from a hefty penalty and tax bill.