What Are the Steps You Should Take When You Inherit an IRA?

You've worked hard your entire life so you can retire in comfort and security. You want to ensure that the same financial opportunities are available for your children, grandchildren, and other loved ones. One way to help ensure your legacy is by leaving a financial inheritance to your heirs through opening annuities in Rochester Hills.  

It is one of the most effective and popular ways to pass on money to future generations through an individual retirement account (IRA).

When you inherit an individual retirement account, you're being allowed to leave a financial legacy for your loved ones. The most important thing you can do with an inherited IRA is to ensure that it's passed on to the next generation as successfully as possible.  

When you inherit an IRA, the first step you should take is determining the best course of action for your unique situation. Depending on what your goals are and what your current financial situation looks like, there are several ways you can use an inherited IRA to help you reach your financial goals.

What is an Inherited IRA?

An inheritable IRA or IRA inherited from a deceased account holder is an investment vehicle that will pass directly to the beneficiary. These accounts are a popular tool that allows you to create a personal legacy for your family. However, you must understand the tax implications and make the right decisions when using an inherited IRA. There are a few options you can choose to do:

1. You can withdraw all the money from the IRA.

2. You may leave the money in the account and enjoy tax-deferred growth.

3. You can also use the money and put it in a different investment vehicle.

However, what you can do with it depends on your relationship with the deceased owner and their age at death.  

How the Rules May Differ Based on Relationship and Age  

Spousal Benefits

If you inherit an IRA from your deceased spouse, the opportunities you have to use the money are quite wide. You may choose to treat it as your own. Meaning you don't need to withdraw the money from the investment vehicle; instead, you only have to rename the account and put it under your whereabouts. If the custodian allows, you may also roll over the money to your own account.  

If you don't want to do that, you may instead use the money and deposit it into an inherited IRA. You have the option of reaping a tax benefit here. You can take the money from your inherited IRA and start a new IRA for yourself.  

Non-Spouse Beneficiaries

Another option available to you is when you inherit an IRA from a person other than your spouse. You could treat it as if it were your own. However, you will still be required to go through IRS-approved procedures to ensure the money is being used appropriately.  

To do this, you'll require documentation from your financial institution that states that the money has been properly inherited and is not currently being used for any other purpose. You may also need to file a Change of Beneficiary form with the IRA custodian.  

To avoid penalties, you will want to act as quickly as possible after you inherit the IRA and before it's closed to new contributions. If you are not planning to use the IRA to save for retirement or other significant purposes, you may want to transfer the money to your own IRA. The IRS may also have other rules that apply.

The New 10-Year Rule

The IRS passed a new law limiting how long you can use your inheritable IRA. The new law limits you to 10 years from the date of death. However, if you want to continue using the account, you will be required to pay taxes on any money you have left in the account. However, this exempts those inheritors who are:

• The account owner's spouse.
• Minor children.
• Disabled or chronically ill beneficiaries.
• Beneficiaries who are within 10 years old of the account owner.

Get a Trusted Accountant to Manage Your Annuities in Rochester Hills

Managing an annuity can be complex and confusing. You need someone you can trust to manage your finances effectively without doing you a disservice. At ABB Wealth Strategies, we pride ourselves as a reputable accounting company with decades of trusted service. Visit our contact page to learn more about our services.