Inheriting IRAs can be complicated.
Individual Retirement Accounts (IRAs) are invaluable when it comes to saving for retirement.
Whether Roth or Traditional, they can help you grow your nest egg for your golden years.
If money remains when you die, they can also be inherited.
According to a recent nj.com article titled “Inheriting an inherited IRA? Your payout choices will be limited,” understanding IRS rules regarding inherited IRAs is important.
You inherited the IRA from your spouse.
You choose a required minimum distribution schedule based off your life expectancy or the life expectancy of the original plan owner.
What happens when you die and pass the plan on to your children?
Your children will be bound by your distribution schedule until the money is gone.
What if you leave your own IRA to your children, making them the initial beneficiaries rather than successor beneficiaries?
Your children may be able to make withdrawals based on their own life expectancies.
With an inherited IRA, you will need to take distributions immediately even if you have not reached retirement age yourself.
This is not necessarily the case if you rolled over the IRA to your own IRA.
Are there exceptions?
The rules listed above are generally true.
They could differ based on the financial institution holding the IRA.
There will also be differences based on whether the IRA was a Traditional IRA or a Roth IRA.
Traditional IRAs would require taxes to be paid on withdrawals while those from a Roth would not.
Work with an experienced estate planning attorney, as the rules governing the inheritance of retirement funds are some of the most complex in the entire tax code.
Reference: nj.com (December 20, 2018) “Inheriting an inherited IRA? Your payout choices will be limited”