The news you’ve inherited an IRA from a spouse, friend or family member is usually a good thing. But you might dread the headache this type of acquisition often requires.
One of the first questions you’ll probably have is what to do with the money. Inherited IRAs come with their own set of rules, including what type of account the money is eligible for, at what age beneficiaries can make withdrawals and when penalties are applied.
Here, we break down the options you have for inherited IRA roll overs.
From a Spouse
If your spouse left you an inherited IRA, a variety of choices are at your disposal. However, these choices depend on your spouse’s age at the time of their death. If your spouse was under the age of 70-and-one-half-years old, you could roll the inherited IRA into your own IRA. Here, you can treat the assets as your own. Additionally, the money is available for withdrawal at any time, but recipients under the age of 59-and-one-half-years old will receive a penalty for withdrawing the money.
If you don’t already have an IRA of your own, you can open an inherited IRA either using the five-year or the life expectancy method. The five-year method allows beneficiaries to make withdrawals on the account at any time up until December 31 of the fifth year after the year in which the account holder died. Life expectancy method IRAs spread annual distributions over the beneficiary’s life expectancy. You may also be eligible for a lump sum distribution of the inherited IRA.
If your spouse was over the age of 70-and-one-half at the time of their death, your choices are the same, except for the five-year method IRA.
From a Friend or Family Member
If someone other than a spouse leaves an inherited IRA in your name, you can transfer the money into a few different types of accounts. Unfortunately, you can’t just roll it into your personal account, but you can open an inherited IRA account and transfer the funds into there. Again, depending on your age, you can open either a life-expectancy or five-year plan. You may also receive a lump sum distribution of the money.
Do You Have to Take the Money?
Beneficiaries have the option of declining the funds if they wish. They can pass it to other eligible beneficiaries or the estate.
IRA roll overs are often confusing and making the wrong selection can be costly. If you have questions about your situation and the options available, contact Jason Graziani in Frisco, TX, at (972) 992-1920.
Jason Graziani | Roll Overs Frisco TX | (972) 992-1920