If you’ve become the beneficiary of an IRA or other retirement account, it’s important to know your options. You can take the money out in one lump sum. This requires opening an account called an Inherited IRA in your name for correct IRS reporting. That lump sum may be taxable depending on whether the original contributions were pre- or post-tax.

Or you can open an Inherited IRA and leave it alone to grow tax deferred. You can’t make additional contributions and must start taking Required Minimum Distributions based on when the deceased would have turned 73. You must also liquidate the account in ten years. With this option, you can name your own beneficiary to pass it on. If your spouse left you the account, you’re allowed to roll those assets into your own retirement account and follow your account’s distribution rules.

You could also disclaim the account, or not accept it. The assets can then pass on to alternate beneficiaries. If you disclaim, it must be done before taking possession of the account, and within nine months of the original owner’s death.

To learn more about what to do with an inherited retirement account, please give us a call today.

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An inherited Individual retirement account, or IRA, can provide significant financial benefits for those who receive them. However, understanding the rules and regulations that come with these inherited accounts is crucial in making the most out of them.

When you inherit an IRA, you can opt to take a lump-sum distribution of the account’s entire balance. However, doing so would mean paying substantial taxes and penalties on the distribution. The better option is usually to keep the account intact as an inherited IRA.

An inherited IRA allows the beneficiary to take distributions over their lifetime, using a special calculation method known as the “required minimum distribution” (RMD). Essentially, the RMD dictates that the beneficiary must withdraw a certain percentage of the account’s balance each year.

One crucial factor to keep in mind is that the RMD for an inherited IRA is calculated based on the beneficiary’s life expectancy. This means that the younger the beneficiary, the smaller the RMD, and the longer the account can potentially grow tax-deferred.

Inheriting an IRA also means being mindful of the account’s tax implications. Inherited IRA distributions are subject to income tax, except in cases where the original account holder had already paid taxes on the contributions. Additionally, inheriting a traditional IRA means that the beneficiary must continue to take RMDs throughout their lifetime, which can have tax implications down the line.

If the beneficiary inherits a Roth IRA, they can choose to take distributions tax-free, as long as the original account holder had the account for at least five years. In this case, the RMDs are still required, but they will not be subject to income tax.

Lastly, inherited IRAs can also be passed down to multiple beneficiaries. Each named beneficiary can then take distributions based on their own life expectancy, allowing each individual to benefit from the account as much as possible.

In conclusion, an inherited IRA can provide a significant financial boon, but it’s crucial to understand the rules and regulations that come with these accounts. By taking the proper steps, beneficiaries can maximize their financial benefits while minimizing any negative financial implications.