Inherited IRA – Some Helpful Tips and Suggestions

If you find that you an inherited IRA, there are a number of important considerations.  Here are some suggestions and guidelines to help you to better understand how to manage and deal with this type of situation.

So if you find that you have inherited an IRA, there are several important things to keep in mind.  The most essential thing to do is to understand some of the key rules which apply to these kinds of situations.

The first thing to do is nothing until you fully understand what rules do apply.  Many people understand that with their own IRA, they can withdraw the money and redeposit it into another IRA without 60 days of the withdrawal without penalty.  This is not true with an inherited IRA.

It must be a trustee to trustee transfer.  In addition unless you inherited the IRA from a spouse, the IRA must be retitled.  It must include the original owner’s name and indicate that it is inherited.

Most IRA’s have a beneficiary form on file which specifies who is to receive the IRA following the death of the IRA owner.  If a person other than a spouse is named, that person must begin taking distributions from the IRA by Dec. 31st of the year after inheriting it but they can draw out the proceeds over their expected life spans and enjoy tax free growth.

It is important to understand that if a spouse inherits the IRA, he/she usually has the most flexibility when it comes to using this account.  For example the spouse can roll the proceeds of this IRA into his/her own IRA and then control distributions in the same manner as their original account.

It is also a good idea for the IRA owner to name both a primary and alternate individual beneficiary.  So the spouse can be named as the primary and kids or grandkids as alternates.  The primary beneficiary can elect to disclaim or turn down the account so that it passes through directly to the alternate beneficiaries without penalty if so desired.

For beneficiaries other than a spouse, it is important to check with your accountant or trustee of the account for clarification on specific rules and regulations.  This will help ensure that the money which has been placed in the account remains safe and will be able to achieve maximum tax savings in the manner in which it was originally intended.