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So you just inherited an IRA…now what?

Inheriting an Individual retirement account (IRA) can be both a blessing and a bit overwhelming. It’s important to understand your options and the potential tax implications to make the most of this inheritance. Here are some things to consider if you recently inherited an IRA:

1. Determine your relationship to the original account holder – Your options for handling the inherited IRA will depend on your relationship to the original account owner. If you are the spouse of the deceased, you have more flexibility and may be able to roll the IRA into your own account. If you are a non-spouse beneficiary, you have different distribution options.

2. Educate yourself about distribution options – Non-spouse beneficiaries have a few different options for taking distributions from the inherited IRA. One option is to take a lump sum distribution, which means taking the entire balance of the IRA at once. Another option is to take required minimum distributions (RMDs) over a certain period of time. It’s important to understand the tax implications of each option, as well as any penalties for failing to take distributions on time.

3. Consider the tax implications – Inheriting an IRA can have tax consequences, so it’s important to understand the potential impact on your overall financial situation. For example, if you choose to take a lump sum distribution, you will owe taxes on the entire balance of the IRA in the year you receive it. On the other hand, taking RMDs over time can spread out the tax burden.

4. Seek professional guidance – Inheriting an IRA can be complex, and it’s a good idea to seek out the advice of a financial advisor or tax professional. They can help you understand your options, navigate the tax implications, and make the best decisions for your individual circumstances.

5. Consider your long-term financial goals – Inheriting an IRA can be an opportunity to bolster your retirement savings or achieve other financial goals. Take some time to consider how the inheritance fits into your overall financial plan and how it can help you achieve your long-term objectives.

Inheriting an IRA can be a significant financial event, and it’s important to approach it with care and thoughtfulness. By educating yourself about your options, understanding the potential tax implications, seeking professional guidance, and considering your long-term financial goals, you can make the most of this inheritance and use it to help secure your financial future.