People who inherit IRAs are often confused about the different rules and options concerning those inheritances. There are a few things that they should know.
The rules concerning IRAs are different for people who inherit the accounts than they are for people who initiate the accounts. This is often a source of confusion for those who inherit, especially when it comes to required minimum distributions.
Recently, the American Legion published some information about what inheritors need to know in "Five things to know about inheriting an IRA."
The list includes:
- People who create their own Roth IRAs are not required to take minimum distributions. However, those who inherit them are required to do so.
- All of the money in an IRA does not need to be taken out at once. Those who inherit can elect to take required minimum distributions based on their own life expectancy. This option must be initiated by December 31 of the year following the death of the original account holder.
- People who choose not to take out required minimum distributions must withdraw the full amount of the IRA within five years of the account owner's death. This option is available when the account originator passed away before reaching the age of 70½.
- Spouses can choose to treat the IRA as their own or as an inherited IRA. The rules must then be followed for whichever option the surviving spouse elects.
- Transferring an inherited IRA can only be done by moving it directly from one custodian to another. The funds cannot be withdrawn by the inheritor and later moved into a new IRA.
Contact my office for assistance navigating these rather complex rules. It is not a DIY matter.
Reference: American Legion (March 16, 2016) "Five things to know about inheriting an IRA."