Inherited IRA Rules

Inherited IRA rules are something you need to be familiar with in order to make sure you get the most out of your money in the future. Whether you inherit an IRA from someone or you plan on leaving one for someone else to inherit, being familiar with what you can expect will make the transition that much smoother. So in this post we will explore inherited IRA rules so that you know just what you have to look forward to in case an account transfer is in your future.

The Basics of the Inherited IRA

The concept behind it is very simple: Either your parent has an Individual Retirement Accountthat they are leaving to you, or you plan on leaving your IRA to someone in the future. The person that the account is being left to, the beneficiary, can be just about anyone; a spouse, a child, another member of the family, but there are different rules that a beneficiary must follow depending on their relationship to the person who originally owned the account. By knowing what the different rules are when it comes to inheriting an IRA, you can save money and taxes while the person receives the account does so as painlessly as possible and increases their own net worth in the process. So let’s take a look at some of the rules concerning and IRA inheritance and what you can expect no matter where you fall on the spectrum.

Inherited IRA Rules Everyone Should Know

Without knowing what rules to follow, it can be easy to trip up when managing your retirement account. You can avoid that by being aware of the following where your IRA inheritance is concerned:

  • You Can Treat the Account as Your Own if the Deceased Is Your Spouse – This is done either by naming yourself as the owner of the account or rolling it over into an IRA you already have. You can also roll it into other types of qualified plans as named by the FBI.
  • You Can Designate Yourself as the Beneficiary of the Account – When you do this, you won’t be able to make contributions to it. There are also specific rules regarding when a beneficiary must begin taking distributions from the account.In many cases, the rules state that beneficiary must receive the entire account by the end fifth year of the original owner’s death.
  • A Basis Can Still Stand – The term basis refers to after-tax contributions made to an IRA. If you inherit a traditional IRA with a basis, then that basis remains and cannot be combine with any other account that holds a basis.
  • IRAs Can Often Have Their Own Rules – While the IRS has guidelines for retirement accounts, there are instances where the firm behind the account might have something different.For instance, the five year rule that was mentioned in a previous post might be a one year rule for the specific company that handles the IRA. You always want to be sure you know just what provisions a company behind a retirement account has in place when you deal with them.
  • Accounts Can Be Combined, but Not Always – If it’s the same kind of account from the same person, they can be combined into one. Accounts from different people, or different kinds of accounts from the same people (Traditional IRA vs Roth IRA), cannot be.

Among the many points you need to learn when it comes to inherited IRA rules, these are some of the most important. Because the process of inheriting and managing an IRA can be a complex one, it pays to consult a professional to ensure you cover all bases. Whatever the case might be, an inherited IRA is just one more tool that will give you a strong financial future when used correctly.       Go Back To the Invest Your Money Now HOMEPAGE