the IRA owner? What is a stretch IRA? So what are the most important points to remember? Watch Szarka Financial’s Senior Financial Planner Alex Menassa, MT, CPA, JD discuss these issues News Anchor Roosevelt Leftwich.

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Inheriting an Individual retirement account (IRA) can be a significant financial gift, but it can also be overwhelming. Depending on your relationship to the original owner of the account, the rules and tax implications can differ. Here are some steps to take if you have just inherited an IRA.

First, determine whether the IRA is a traditional or Roth account. Traditional IRAs allow contributions to be made pre-tax, which means taxes are paid on the earnings when the money is withdrawn. Roth IRAs, on the other hand, allow after-tax contributions and tax-free withdrawals. If you are not sure which type of IRA you inherited, contact the financial institution holding the account.

Next, consider your relationship to the original owner of the IRA. If you are the spouse of the deceased, you have more options in terms of how to handle the account. You can roll over the IRA into your own existing IRA or start a new one in your name. If you inherit the IRA as a non-spouse beneficiary, you must begin taking required minimum distributions (RMDs) based on your life expectancy.

If you inherit an IRA as a non-spouse beneficiary, you also have the option to take the entire distribution as a lump sum. However, this can result in a large tax bill and may push you into a higher tax bracket. Taking smaller distributions over time can help manage the tax burden.

It is also important to understand the timeline for taking RMDs. For non-spouse beneficiaries, you must begin taking distributions by December 31st of the year following the death of the original owner. The amount is based on your life expectancy, with the calculation being adjusted annually.

Finally, consider consulting a financial advisor or tax professional to ensure you understand all the implications of inheriting an IRA. They can help you make decisions about withdrawals, taxes, and estate planning.

Inheriting an IRA can be complicated, but taking the time to understand your options and seek professional advice can ensure that you make the most of this financial gift.