Some Considerations To Keep In Mind After Inheriting An IRA

An inheritance is always a welcome event, overlooking any distress caused by the death of the person who left the property behind, but can lead to many questions. When the inheritance is simply cash, there is nothing much to worry about but when it is something like an IRA there are special rules that apply. Below are a few things to keep in mind in such a situation:

• Beneficiaries will always be subject to required minimum distributions from all types of IRA’s despite the fact this does not apply to the owner of a Roth IRA during their lifetime.
• If you file by December 31 of the year following the death of the owner, an option known as stretching is available. This allows a beneficiary to tie distributions to life expectancy while also allowing full withdrawal of the money from the account if desired.
• If stretching is not used and the owner died before they reached age 70 1/2, then the five year rule will apply. This means no yearly distributions are required but the entire account must be emptied by last day of the fifth year after the death of the owner.
• Rollover rules differ for beneficiaries. Owners are allowed to personally withdraw money in place it in a new IRA without penalty as long as it is done within 60 days. However, this does not apply to someone who through inheritance and they must transfer the money directly from one account to another.

See J.J. Montanaro, Five things to know about inheriting an IRA, The American Legion, March 16, 2016.