The rules around inherited IRAs are different for spouse and non-spouse beneficiaries.
Non-spouse beneficiaries can open and transfer funds into an inherited IRA, take a lump-sum withdrawal or turn down the inheritance. Spouse beneficiaries can roll the funds into an existing IRA account or open a new account.
Required minimum distributions (RMD) rules vary based on what type of account is inherited, when the account was inherited and your beneficiary designation.
An inherited IRA is an individual retirement account (IRA) you open when you’re the beneficiary of a deceased person’s retirement plan. Most types of IRAs or workplace retirement plans can be transferred to an inherited IRA, including traditional, Roth, SIMPLE, and SEP IRAs, as well as 401(k) plans.
Being the beneficiary of someone’s retirement account is an honor, as they’re trusting you with some of their life savings. But inheriting an IRA also comes with responsibilities. Depending on the capacity in which you’re receiving the inheritance, there are different options available to you and requirements to consider. If you’re the spouse of the original account owner or other Eligible Designated Beneficiary, you have additional options.
When you receive access to the original owner’s account, you have a few options. These options can be affected by the type of account you’re inheriting and the age of the original account holder. Speak with a tax or financial professional to determine the right path forward for your situation.
Transfer funds to a new inherited IRA
Action: Open your own inherited IRA.
Take the cash
Action: Take the inheritance in a lump-sum withdrawal for access to the funds immediately.
Turn it down
Action: Choose not to accept the inheritance.
Roll into existing or new IRA (spouse only)
Action: Transfer the inherited assets into an existing IRA account.
Non-spouse designated beneficiaries must roll the assets over to an inherited IRA and most must withdraw all the money within 10 years, as noted above. There are some exceptions to the 10-year rule for non-spouse Eligible Designated Beneficiaries (EDBs):
If you decide to transfer the funds and open an inherited IRA, make sure you have:
Be sure to consult a financial professional to use an inherited IRA in way that works best for your situation.
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