Episode 52: 3 Things To Know About Inherited IRAs

Today’s Prep:

Did you recently inherit an IRA? What rules do you need to know and what options do you have in order to make the best decision for you and your family?

(Click the featured times below to jump forward in the episode)

Equipping Points:

When it comes to inherited IRAs, there is a lot of flexibility and options on how to receive that money. How do you know what option is best for you? And what kind of tax liability will you face?

Let’s start first by reviewing IRAs and how they work. When you put money into an IRA you get a tax deduction in that year and then the money grows tax-deferred over time. After age 59 and a half, you can pull the money out, but you’ll have to pay the tax on that money. Once you turn 70 and a half, you have to take money out of the account, which is called required minimum distributions.

But what about if you inherit an IRA?

If you inherit an IRA from a spouse, you can get a spousal rollover. It’s a simple process to tell the custodian to put it in your name. Then, you treat it as your own IRA from the beginning.

When you inherit an IRA from another family member (not a spouse) or someone else the process changes. How you receive or transfer the original IRA to you can have significant tax implications. You may want the lump sum of the money or you may want to turn it into a beneficiary IRA. You’ll want to make sure to manage the tax liability on the IRA, which can weigh heavily into your decision. Remember that an inherited IRA has RMDs even before you turn 70 and a half.

Then what happens if you inherit an IRA that was already once inherited before you? The structure of the inherited IRA is then passed down with the RMDs based on the previous inherited IRA holder.

You have a lot of choices when it comes to an inherited IRA, so it’s important to understand the different options and what it means for you and even what it means for those who may inherit it after you. On this episode of Cover Your Assets KC, David Dickens talks us through some of those options so you better understand what to expect and then what to do with an inherited IRA.

Listen to the full episode or click on the timestamps below to hear more about a specific topic.

[1:22] – What do you need to know about a normal IRA?

[2:48] – What if you inherit an IRA from a spouse?

[3:47] – What happens with an inherited IRA from a parent or family member?

[5:14] – How to create a beneficiary IRA.

[6:06] – What are the RMDs on an inherited IRA?

[9:03] – Is it possible to inherit an already inherited IRA?

[11:45] – The SECURE Act proposed limits on inherited IRAs to a maximum of 10 years.

Today’s Takeaway:

Additional Resources:

PODCAST: 4 Reasons Why You Might Benefit From Roth Conversions

PODCAST: How to Plan For Receiving An Inheritance In Retirement

 

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The host: David Dickens

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