Inherited IRA's

Julia Carlson |

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 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 Beneficiary IRA. Once you do this you will be required to take Required Minimum Distributions (RMD). Non-spouse beneficiaries of any age will need to start their RMDs the year following the year the owner died and can stretch them out over their own life expectancy. This can potentially 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 a qualified advisor (or us) before receiving any distributions from a retirement account you inherit to ensure it’s done correctly. Remember—it is easier to avoid a problem than it is to solve one!

Information in this material is for general information only and not intended as investment, tax or legal advice. Please consult the appropriate professionals for specific information regarding your individual situation prior to making any financial decision.

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