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Inheriting an IRA: Your Essential Guide to Maximizing Benefits

As the aging population grows, inheriting retirement accounts is increasingly common. However, navigating these accounts demands careful attention to avoid costly missteps. Here's your comprehensive guide to handling an inherited IRA wisely in four crucial steps.

A person sitting at a desk, reviewing documents with a pen, symbolizing thoughtful financial planning for an inherited IRA.

Step 1: Establishing the New IRA Title

Setting up an IRA correctly is paramount upon inheriting it. Ensure the account bears the deceased owner's name and indicates it's inherited. If you're a spouse, you can roll the inherited IRA into your account. But act swiftly – any transfers must occur within 60 days. Non-spousal beneficiaries must create a new Inherited IRA, maintaining tax benefits.

Step 2: Calculating Distribution Amounts

Spouses use prior year-end account values and life expectancies for distributions. Non-spousal beneficiaries must withdraw the entire amount within ten years post-2020, a change brought by the SECURE Act.

Step 3: Determining After-Tax Basis

Uncover any after-tax contributions in the inherited IRA. Completing Form 8606 allows you to claim the non-deductible portion of the required minimum distributions. Executors might need to refer to the deceased's tax returns for this information.

Step 4: Planning Taxation of Distributions

Tax implications vary for Roth IRAs and other IRAs. Roth IRA distributions can be tax-free under certain conditions, while others are fully taxable. The SECURE Act mandates, with exceptions, that non-spousal beneficiaries distribute the entire account within 10 years. Seek advice promptly to avoid costly mistakes.

Take Action:

  • Ensure correct titling of the inherited IRA.

  • Calculate distributions accurately, considering recent legislative changes.

  • Determine after-tax contributions and complete necessary forms.

  • Plan distribution taxation wisely, consulting with experts as needed.

Invest In a Life You Love,

Donovan Carson - founder of Carson Capital


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