If you have inherited an IRA from a loved one, there are several options available for how to handle it. However, the rules governing inherited IRAs can be complicated, so it is important to obtain professional advice on what option would be most beneficial to you. It is important that you do not lose the tax-deferred advantage causing you to pay taxes on the entire account balance.
It is important to note that this blog does not take the place of obtaining legal counsel in your jurisdiction, but below are a few options you may want to consider:
- Cash Out. You are allowed to withdraw the full amount of the IRA. However, you must pay income taxes on this amount, so it often is not the best option.
- Spouse Rollover. If you inherited the IRA from your spouse, you can roll it into a new IRA or merge into your existing IRA. This option allows the account to continue to grow tax-deferred. This option creates the best income tax strategies, and allows for the inherited funds to continue to be protected from creditors – a big plus!
- Non-Spouse Option. If you inherited the IRA from somebody other than a spouse, your options may depend upon when the initial owner died.
o If the initial owner of the IRA died before he or she began to receive requisite distributions, you can establish a “Beneficiary IRA.” This allows you to take yearly distributions based upon your life expectancy. The Beneficiary IRA must be finalized before the end of the year after the initial owner’s death. If the beneficiary does not take the first distribution by then, the full sum of the IRA must be withdrawn by December 31st of the fifth year after the owner’s death.
o If the initial owner died after he or she began to receive the requisite distributions, a non-spouse beneficiary is required to take a distribution in the same amount as the owner’s require minimum distribution for the year he or she died if one had not already been taken. In subsequent years, the distributions can be based upon the length of either the beneficiary’s life expectancy or the remaining life expectancy of the original owner.
If you are the beneficiary of an inherited IRA and you need help deciding what to do with it, contact our office to schedule an appointment. We can explain all of your options and assist you in determining what would be most beneficial to you. It’s important to contact an expert to discuss your options. There are time limits to make elections you need to be aware of, and if you do something and then decide it was the wrong option, it may be too late to correct the problem.
The Astill Law Office has provided high quality legal services for over 30 years. We specialize in wills, trusts, estate planning, and asset protection. If you have any questions about creating a Trust, Will, or estate planning in general, contact The Astill Law Office at 801-438-8698.
