Inheriting an IRA
diamondcpas
February 23, 2022

Inheriting an IRA presents a number of choices for the beneficiary. Whether it’s a Roth or Traditional IRA, the rules surrounding the inheritance can be complicated and your decisions can have a significant impact on your financial planning.

When the so-called “stretch IRA,” was virtually eliminated by passage of the 2019 SECURE Act, beneficiaries of inherited retirement plans needed to re-consider when to receive distributions and the tax implications of that decision.

Under the SECURE Act there is a 10-year rule, which means there is no annual distribution requirement for the first nine years after the death of the IRA holder. Instead, the beneficiary must clear the account by the end of the 10th year of the person’s death. According to the IRS, the IRA can continue to grow tax-deferred for 10 years and then must be fully distributed.

The Act also raised the required minimum distribution age to 72 and created Eligible Designated Beneficiaries (EDBs), a new class of beneficiaries who can withdraw from an inherited IRA over a longer period of time.

The EDBs are:

1.     Surviving spouses

2.     Chronically ill beneficiaries

3.     Disabled beneficiaries

4.     Minor children of the account owner ( up to the age of majority, or 26, if still in school)

There are a number of advantages to individuals in one of the above-mentioned categories, as distributions can be taken over the beneficiary’s lifetime and there’s no timeline for when the account must be emptied. However, according to the law, a required minimum distribution must be taken regardless of whether the account is a Roth or Traditional IRA.

As always, it is advisable to consult with your tax advisor as you navigate such an important decision that can have far-reaching implications for your financial future. Our experienced, professional staff is here to guide you and answer any questions you may have.

0 Comments

Recent Posts

FAQs to Accountants During Tax Time

FAQs to Accountants During Tax Time

As we approach the bustling season of tax filings, it's natural for questions to arise. To make this process smoother for you, our team of expert accountants has compiled a list of Frequently Asked Questions (FAQs) that we often encounter during tax time. Let's dive...

Tax Credits vs. Tax Deductions

Tax Credits vs. Tax Deductions

Taxpayers experience many challenges when it comes to filing their returns. It can be stressful collecting documents, understanding forms, and getting everything in on time. One common challenge is understanding the tax lingo often used when deciphering the tax code. ...

Did You Make a QCD From Your IRA? Tell Your Accountant

Did You Make a QCD From Your IRA? Tell Your Accountant

As we navigate the complex world of tax planning, there's a valuable strategy that might have flown under your radar – Qualified Charitable Distributions (QCDs) from your Individual Retirement Account (IRA).  In this blog post, we shed light on the potential...

QUESTIONS?

Reach out for a consultation.