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Inherited IRA's

What is an Inherited IRA?


An Inherited IRA, or a Beneficiary IRA, is a tax-advantaged investment account that a person or entity opens to house the money that they've inherited from a deceased loved one's retirement plan.  The person opening the inherited IRA, known as the beneficiary, may be the deceased's spouse, child, other relative, friend, or even an estate or trust. In the case of multiple beneficiaries, each may open a separate inherited IRA.  As a beneficiary, you can’t make additional contributions, but with an Inherited IRA the funds can remain tax-deferred.  Inherited IRAs are typically opened for non-spouse beneficiaries, as spouses can transfer inherited assets directly into their own personal retirement accounts (spouses can also choose to open an inherited IRA as well).

Some things to keep in mind:

  • IRA beneficiaries supersede a will or trust. Make sure your beneficiary designations are up to date on your personal IRAs.

  • You will owe taxes on withdrawals from your inherited IRA if the funds in the original IRA account are classified as tax-deferred.

  • Distributions from inherited Roth IRA’s usually don't increase your taxes, provided that the deceased held the Roth account for at least five years. Distributions from Roth IRAs are tax-free because the original beneficiary already paid taxes on the contributions in the years in which they occurred.

There are many nuances for Inherited IRA's.  For more information, please contact us  or consult your tax advisor.

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