There are many choices that you will need to make if you inherit an Individual Retirement Account (IRA) depending on your relationship to the person who left it to you. Since inheriting an IRA impacts you financially and also has consequences on your estate planning and taxes, you will need to get advice from experienced professionals before doing anything with this newly acquired asset.
1. First determine whether the decedent took a distribution during the year of death. If the deceased was not yet age 70 ½, then there is no year-of-death required distribution. But for others, the minimum distribution is required and must be taken by the last day of the calendar year in the year in which the person died.
2. Check the beneficiary designation forms for accuracy and to ensure there are no contradictions between the beneficiary designations and other estate planning documents.
3. Non-spouse beneficiaries are working on tight deadlines to make a decision on whether to take distributions or liquidate because mandatory distribution requirements must be timely met.
4. Non-spouse beneficiaries have to decide whether to take distributions from the IRA over their life expectancy or whether to liquidate the IRA within five years from the decedent’s date of death. (*Note: In 2019, Congress introduced legislation that may end up eliminating the stretch option and capping it at 10 years.)
5. Spouse beneficiaries have more options.
- Treat the IRA as if it were your own, naming yourself as the owner.
- Treat the IRA as if it were your own by rolling it over into another account, such as another IRA or a qualified employer plan, including 403(b) plans.
- Treat yourself as the beneficiary of the plan.
Keep in mind that Roth IRAs differ from traditional IRAs. If you inherited an IRA and need experienced advice or if you plan to change your designations and need to consult an experienced estate planning attorney on any consequences of the change, please contact Stouffer Legal at 443-470-3599 in the Greater Baltimore area.