Everything You Should Know About Inherited IRAs
Inheriting an IRA comes with rules that differ significantly depending on whether the beneficiary is a spouse. This video covers the flexibility spouses have to roll funds into their own IRA, the 10-year withdrawal requirement for non-spouse beneficiaries, and how required minimum distributions and Roth rules factor into the decision.
Inheriting an IRA comes with rules that differ significantly depending on whether the beneficiary is a spouse. This video covers the flexibility spouses have to roll funds into their own IRA, the 10-year withdrawal requirement for non-spouse beneficiaries, and how required minimum distributions and Roth rules factor into the decision.
Key takeaways
- Spouse beneficiaries can roll an inherited IRA into their own account and defer required distributions until age 73 or 75.
- Most non-spouse beneficiaries must withdraw the full balance of an inherited IRA within 10 years of the original owner's death.
- Inherited Roth IRAs do not require annual RMDs but still must be emptied within the 10-year window.
- Modeling withdrawal timing within a financial plan can meaningfully affect the taxes owed on an inherited IRA.
Hi friends, today I want to talk with you about something that affects many families: inherited IRAs. If you have inherited an IRA from a loved one, understanding the rules is essential to making the best possible financial decisions. This may also be a valuable video to share with your own IRA beneficiaries.
There are two main types of beneficiaries: spouses and non-spouses, such as children, siblings, or other loved ones. Each group has different rules and options when it comes to handling the inherited funds. If you are the spouse of the original IRA owner, you have the most flexibility. You can roll the funds over to your own IRA and defer any mandatory distributions until you turn 73 or 75, depending on the year you were born. You can also begin taking distributions immediately without penalty, even if you are younger than the typical 59 1/2.
If you are not the spouse, for example an adult child or other loved one, the rules recently changed. Now, most non-spouse beneficiaries must withdraw the entire balance of their inherited IRA within 10 years of the original owner passing away. You will also need to take a required minimum distribution if the original owner had already reached their RMD age. If you have inherited a Roth IRA instead, you will not need to take the RMDs, but you will need to withdraw the entire balance within that same 10-year window.
If you have inherited an IRA, there are a few key strategies you should consider. You should model this within your financial plan to find the most effective withdrawal plan for you. For example, some inherited IRA beneficiaries will be better off waiting the full 10 years before taking any distributions, while others may want to take a withdrawal each year for 10 years. This will depend on a variety of factors built into your plan, and there may be a substantial tax difference between each of these distribution strategies.
An inherited IRA can be a powerful financial asset for a loved one, but it also comes with important rules and tax implications. Making the right decisions can help you maximize your inheritance and protect your new wealth over time. At Presilium, we specialize in helping individuals and families navigate complex financial decisions like this one. If you've inherited an IRA and want to explore the best strategy for your situation, we're here to help. Reach out to us today for a personalized consultation. Thank you, and I look forward to talking with you next Friday.
More from our team
Turn insight into a plan
The first conversation is 30 minutes, no preparation needed.