Inherited IRAAn inherited IRA or Beneficiary IRA is the result of an inheritance from a Traditional, Simple, or Roth IRA. So, what are your options if you have received one? That depends. If you are the spouse of the previous owner you have the option to treat it as your own IRA and transfer it to your own account. This would be similar to transferring any other IRA into another IRA account. If you are not a spouse then you have 3 options. 1. Take the lump sum know and pay all taxes in it 2. Keep it into the inherited IRA account and receive distributions 3. Disclaim your inheritance in which case it will be passed down to the next in line Note: You also have those 3 options if you where the previous spouse Disclaiming it and taking a lump sum are pretty simple to understand so let us look at what happens if you decide to keep the IRA into the account and receive payments. You must start taking distributions by December 31st of the year that you receive the IRA. If you decide to take distributions then you have two choices. The first choice would be to take all of the money out from the IRA in minimum schedule payments within a 5 year time period. So if you have $100,000 in the account that would mean somewhere around $20,000 a year which would be distributed and taxed as income for 5 years. The real number may depend on other things as well such as expected interest. The second option would be to take all of the money out in minimum schedule payment over a time period which is less than your life expectancy. Either way the full amount of the IRA must be taken out within a specific time period. Multiple Owners The previous owner of the IRA account would have had to designate a benefituary by the age of 70 ½. They may even decide to spread their IRA out between many different people. But if they did they must specify who gets what percentage of the account. In that case each member would get a percentage of the account and they would all be forced to transfer their section over to their Benefituary IRA account. If for whatever reason multiple owners hold the account and the money is not going towards all benefituaries the member with the shortest life expectance may expect to gain control of it, all things being equal. Setting it up Once you have inherited an IRA you should contact your IRA provider and tell them that you are the benefituary of the account. They will send you all the paperwork that you need to fill out to help you either create an inherited IRA account or to get the lump sum of the money. |
