Inherited IRAs

When an IRA owner passes away, the IRA assets are left to the beneficiary, or beneficiaries, listed on the IRA account application or amended beneficiary form. If multiple beneficiaries are listed, each receives his or her portion as listed on the IRA beneficiary form. Similar to any other Traditional IRA distribution, if a beneficiary receives funds directly from the inherited IRA, income taxes will be incurred on the taxable portion of the distributed assets. However, the beneficiary can leave the IRA funds inside an “Inherited IRA,” and take distributions from this account as required. Special rules, discussed below, apply to a spouse who inherits an IRA.

It is important for anyone who has an IRA to make sure that the beneficiary portion of the application is complete so the IRA will be left to whomever the IRA owner desires. If the assets in the IRA are substantial, naming beneficiaries and contingent beneficiaries becomes an important estate-planning tool, and should be discussed with an estate attorney.

Beneficiaries may choose to take a lump sum distribution or open an Inherited IRA. In addition, if the spouse is the sole beneficiary, the spouse may transfer the assets into his or her IRA (new or existing). The age of the original account holder influences the choices available for distributions from Traditional IRAs. Age, however, is not a factor in choices for Roth IRA distributions.

The following chart displays the choices available to beneficiaries of Traditional IRA accounts:

Bottom Line

The recent changes in distribution rules allow the Inherited IRA owner a much greater period of time, in most cases, to distribute the IRA assets. It is almost always beneficial for the owner of an Inherited IRA to make only the minimum required distribution each year. This allows the remaining funds to continue to grow, tax-deferred inside the IRA.

If you have inherited an IRA, you should speak to a financial adviser or tax consultant. Together you can determine when distributions should start, and the amount that should be distributed annually. For more information on Inherited IRAs, contact Henssler Financial at 770-429-9166 or experts@henssler.com.

Disclosures

This article is meant to provide valuable background information on particular investments, NOT a recommendation to buy. The investments referenced within this article may currently be traded by Henssler Financial. All material presented is compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. The contents are intended for general information purposes only. Information provided should not be the sole basis in making any decisions and is not intended to replace the advice of a qualified professional, such as a tax consultant, insurance adviser or attorney. Although this material is designed to provide accurate and authoritative information with respect to the subject matter, it may not apply in all situations. Readers are urged to consult with their adviser concerning specific situations and questions. This is not to be construed as an offer to buy or sell any financial instruments. It is not our intention to state, indicate or imply in any manner that current or past results are indicative of future profitability or expectations. As with all investments, there are associated inherent risks. Please obtain and review all financial material carefully before investing. Henssler is not licensed to offer or sell insurance products, and this overview is not to be construed as an offer to purchase any insurance products.