Search
Close this search box.
Meet With An Advisor

IRA Beneficiary Rules & Options

If you’ve recently inherited an IRA, you may find the beneficiary rules are pretty complex. They differ depending upon your relationship with the former owner of the IRA. They are determined by what you decide to do with your new account. The option you choose may have a deadline and carry a tax burden—and that date and those taxes may be different than the ones inherent with other options. This explains why I recommend consulting a professional if you’ve inherited an IRA.

I also believe it’s important to know the basics, though, and am happy to offer a primer.

Basically, you have four options to consider:

  1. Take all the money now. Of course, you can cash in the IRA and buy a Corvette or a house or whatever else you heart desires. Nice as it sounds, I don’t typically recommend this option. Depending on the size of the IRA or retirement plan you inherited, the taxes could be significant, and at RPOA we generally believe that most people should pay taxes as far into the future as possible.
  2. Treat the Inherited IRA as your own account. If your spouse leaves you an IRA, you can designate yourself as the owner of the account and manage it as if it had always been yours. You can also roll the deceased’s IRA over to your own account. This option is only open to spouses, and if you choose it, you should make sure to follow the rules for Required Minimum Distributions (RMDs).
  1. Transfer the money to an inherited IRA. Also known as a beneficiary IRA, an inherited IRA is an account you open upon inheriting an IRA. As the IRS explains it, you “can make a trustee-to-trustee transfer as long as the IRA into which amounts are being moved is set up and maintained in the name of the deceased IRA owner for the benefit of the beneficiary.” You can either transfer funds to a traditional IRA, in which case the distributions will be taxable, or into a Roth IRA where it can grow tax-free, but is subject to the rules governing Roth IRAs. When choosing between a traditional or Roth IRA, I suggest you consider your retirement date and your tax bracket today versus what it may be in the future. This option is open to non-spouses, who will typically have to take RMDs no later than December 31st in the year following the original account owner’s death.
  2. Decline the money. I know it sounds crazy, but there may be times when you don’t want the money. Maybe you’d have a huge tax consequence. Maybe you’d prefer the money go to your sister, or your child. When you use this option, which is called “disclaiming,” the IRA passes to other eligible beneficiaries. Unfortunately, it’s not as simple as it sounds. You must act within 9 months of the original IRA owner’s death, and you must be very careful about documenting your decision or you could incur negative tax consequences for you and the other beneficiaries. And if that wasn’t complicated enough, the documentation rules vary from state to state.


Remember, this post is only a primer. Not only are there more details and deadlines, but IRA beneficiary rules sometimes change with new laws. I strongly suggest meeting with a professional after (or even better, before) inheriting an IRA. RPOA’s advisors understand the issues and opportunities regarding inherited IRAs. They can advise you regarding your options, and build you an entire financial plan that incorporates your new IRA. Contact us today.

Ken Moraif, CFP®, MBA
Senior Advisor at Retirement
Planners of America

Author of Buy, Hold, and SELL!

Amazon.com Author Page

Get Free Email Market Alerts

Sign Up

Contact

Quick Links

Connect With Us

Facebook Twitter Linkedin Youtube Instagram Pinterest
RPOA Advisors, Inc. (d/b/a Retirement Planners of America ) (“Retirement Planners of America”, “RPOA”) is an SEC registered investment adviser with a primary business location in Plano, Texas. Registration as an investment adviser is not an endorsement by securities regulators and does not imply that Retirement Planners of America has attained a certain level of skill, training, or ability. The “Invest and Protect Strategy” (the “Strategy”) refers to a strategy that Retirement Planners of America fundamentally employs for its clients. Retirement Planners of America previously employed a similar strategy that it referred to as the “buy, hold, and sell” strategy or “buy hold, and protect” strategy. Past performance does not guarantee future results. Therefore, current or prospective clients should not assume that the future performance of the Strategy, any specific investment, or any other investment strategy that Retirement Planners of America recommends will be profitable or equal to past performance levels. All investment strategies have the potential for profit or loss. References to recommendations made under the Strategy that predate 2011; and statements such as and similar to: “we told our clients to be out of the market in 2007 and 2008,” “we told our clients to get back into the market in 2009,” and “clients that followed our advice were out of the market in 2008;” refer to strategies collectively employed and recommendations collectively made by Retirement Planners of America’s principals while employed at Eagle Strategies, LLC., and also at Cambridge Investment Research Advisors, Inc. Three of the five principals remain as principals today, including the Retirement Planners of America’s founder, Ken Moraif. Retirement Planners of America has been employing the Strategy since its inception in 2011. Therefore, any references to Retirement Planners of America’s performance or its investment advisory recommendations predating 2011 generally refer to recommendations made by Retirement Planners of America’s principals at the respective other firms described above. Like all investment strategies, the Strategy is not guaranteed. It is possible that it can incorrectly predict a bear market (generally accepted as a 20% drop in a market index), which has, in-fact, happened before at Retirement Planners of America and affected its clients accordingly. When the sell / “protect” portion of the Strategy is implemented, affected investors will incur transaction costs and taxable accounts will incur tax consequences. However, when implementing that portion of the Strategy, Retirement Planners of America believes that the benefit of avoiding bear markets outweighs the burden of these transaction costs and tax consequences. Retirement Planners of America is not an accounting firm or a law firm. The receipt of personalized and tailored services, or access to financial or professional resources should not be construed as a guarantee of a particular outcome. Comprehensive or holistic financial planning indicates that financial planning will be informed by the material financial and investment circumstances of the client, as communicated by the client to Retirement Planners of America but may not consider literally all aspects of a client’s financial affairs. Not all services will be appropriate or necessary for all clients, and the potential value and benefit of Retirement Planners of America’s services will vary based upon a variety of factors, such as the client’s investment, tax, and financial circumstances and overall objectives. Not all services will be appropriate or necessary for all clients, and the potential value and benefit of Retirement Planners of America’s services will vary based upon a variety of factors, such as the client’s investment and financial circumstances, the client’s tax bracket, the nature and amount of the client’s employer and outside benefits, the client’s level of cooperation and communication, and the client’s overall objectives. Retirement Planners of America will generally upon the accuracy and completeness of the information provided by the client when providing advisory services. The receipt of personalized and tailored services, access to financial or professional resources, or the experience or expertise of an adviser should not be construed as a guarantee of a particular outcome. Market commentary is intended for convenience, educational, and informational purposes only and should not be construed as individualized advice or recommendations. The discussions contained on this page are not a substitute for investment advice from a professional adviser. Readers should not use this content as the sole basis for any investment, financial planning, tax, legal or other decisions. Rather, a professional adviser should be consulted, and independent due diligence should be conducted before implementing any of the options referenced. Third-party sites that are directly or indirectly linked or referenced above may collect information, including personal information relating your online activities over time and across different websites and other online services. Retirement Planners of America does not control a third-party’s collection or use of personal information or tracking technologies. Photos and images on this website are not of past or present clients of Retirement Planners of America. These photos should not be construed as an endorsement of Retirement Planners of America or its representatives by any client.

©2022 Retirement Planners of America. All rights reserved.

Careers | Privacy Policy | GDPR Privacy Policy | CCPA Privacy Policy | GDPR Cookie Policy | Form CRS