Podcast Episode 318: How Should I Handle an Inherited IRA?
We’re in the middle of one of the largest wealth transfers in our country’s history as Baby Boomers pass on their estate to loved ones, and some of that money is coming in the form of an IRA. Rules regarding inherited IRAs have changed in the past few years so let’s take a few minutes to tell you what you need to do if you receive one.
The first thing to know is the spouse takes over the IRA in this situation. They don’t have any rules placed on the money. It’s just theirs to control like any other IRA in their portfolio. But for pretty much any other person – child, cousin, sister, friend, whatever – that account will become a beneficiary IRA and will need to be drawn down over a 10-year period.
The money doesn’t have to all come out at once, and you don’t have to withdraw a set amount each year. The ball is in your court in terms of how you take that money out, but it has to all be gone from that inherited IRA within ten years or you face penalties from the IRS.
That’s why tax planning becomes critical in this scenario. You want to minimize the taxes you’re going to owe over that 10-year period so we want to have a plan for how to do that. We’ve seen situations where the penalties and fees have eaten significantly into what was left and that’s exactly what we want to avoid.
As you can tell, there are a lot of nuances in this scenario that you’re probably not going to think about yourself, which is why you want to work with a financial professional to help you take stock of where you are and where you want to go. Our complimentary Money Map review can begin that process and get the conversation started with someone on our team.
Here’s what you can expect to learn in this episode:
•Certain people are able to take over the account as their own without any rules.
•For most people, you are going to have 10 years to withdraw all the money in the inherited IRA.
•Why tax planning becomes so important for those receiving the inheritance.
•How have the rules changed on inherited IRAs in the past few years?
