Preparing for Tax Implications of Inherited IRAs

A large sum of IRA funds is expected to pass through inheritance, with an estimated $11.6 trillion expected to pass to Baby Boomers. The inheritance is complicated by the tax consequences of a non-spouse inheriting an IRA, and it is not uncommon for IRAs to list children, an ex-spouse, or no one as beneficiary. Here are some tips when designated as a non-spouse beneficiary:

• If possible create a stretch IRA to avoid an immediate forced cash out and taxes.
• Keep the inherited IRA separate from a personal IRA and know additional funds cannot be added.
• If multiple beneficiaries are designated, such as siblings, quickly separating the shares and knowing electing out of the inheritance is an option is important.

See Lewis Walker, Advice IQ: Inheriting an IRA? Tax Traps Abound, USA Today, Nov. 22, 2014.

Special thanks to Brian Cohan (Attorney at Law, Law Offices of Brian J. Cohan, P.C.) for bringing this article to my attention.