Be careful if you inherit a retirement account. In many cases, the decedent’s largest asset is a retirement account. If you inherit a retirement account, such as an IRA or other qualified plan, the money is usually taxable upon receipt. There is no step-up in basis on investments within retirement accounts and therefore most distributions are 100% taxable.
Non-spouse beneficiaries usually cannot roll over an inherited IRA to their own IRA, but the solution to this problem can be easy: establish an Inherited IRA, also known as a “stretch” IRA. Non-spouse beneficiaries of any age are allowed to start their RMDs the year following the year the owner died and stretch them out over their own life expectancy. This will reduce your income taxes significantly compared to having all of the IRA taxed in one year.
These tax laws are very complicated and you must implement the requirements carefully to avoid any unnecessary income taxes and penalties. Please contact us before receiving any distributions from a retirement account you inherit, we would be happy to assist you. Remember—it is easier to avoid a problem than it is to solve one!
Email me your questions at firstname.lastname@example.org or call us at 541-574-6464. You can also post your question on our Facebook page. http://www.facebook.com/FinancialFreedomWealthManagementGroup
Julia Carlson is a registered Principal with, and securities are offered through, LPL Financial. Member FINRA/SIPC. Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual.