Five Things You Need To Know About An Inherited IRA
At some point during their lives, many people inherit an IRA from loved ones who have passed on. If you have inherited an IRA, there are several things you need to know. These things fall into five categories: naming an IRA; deadlines; spouses or non-spouses; splitting an IRA; and distributions.
Unless the IRA is inherited from a spouse, you should not change the IRA to your own name. Renaming an IRA initiates a rapid distribution of its assets, which makes them taxable at normal income tax rates. The name of an IRA requires only the name of the deceased owner, a statement that this IRA is to benefit an heir, and the word IRA itself.
Whatever action is taken regarding an inherited IRA, it’s best to act quickly. There is a deadline of one year after the original owner died. If this deadline is passed, you can no longer take action regarding the IRA and may have to pay higher taxes than you might have had you acted.
A spouse who inherits in IRA has the advantage that he or she can take everything in said IRA and add it to a new IRA of their own. This allows them to reset the minimum distribution schedule. Of course, this same advantage does not apply to beneficiaries who are non-spouses.
If an IRA is left to several beneficiaries, it’s often a good idea to split the IRA. This is in the case that the beneficiaries cannot all agree on how to invest the IRA to Gold and how to distribute its earnings. Alternatively, an IRA can be split into separate ones for each beneficiary. The custodian of the IRA must approve this, but beneficiaries should be made aware that this is in fact an option.
Many people who inherit an IRA choose to withdraw all the money quickly, paying the higher taxes incurred by doing so, in order to be able to spend the money as soon as possible. However, if this is not your intention, you can use minimum distributions to make use of an IRA’s tax deferral.
The preceding are five things that each person who inherits an IRA should know. This knowledge will help you understand your options as to what can be done with the IRA you inherit. It’s important that you do not allow a deadline to pass, or your options disappear. You may want to seek the knowledge of an IRA professional.