How to Deal With Inherited IRAs
A recent article in Forbes provided some good information on how to deal with inherited IRAs:
Know before you act. Once you inherit an IRA, you should not do anything until you become fully informed about the IRS rules that apply to it. Do not assume that you can treat an inherited IRA the same as you would your own because you cannot.
Beneficiary forms control an inherited IRA. How the beneficiary forms are filled out control what can be done with an inherited IRA. To provide beneficiaries with the most flexibility, there should be both primary and alternate beneficiaries specified on this form. This provides the primary beneficiary with the choice of turning down the account, which can then pass on to the alternates. If an estate is named, then tax deferral is cut short. In addition, the IRA custodian’s default policy will rule if there is no beneficiary form on file.
Spouses have options. A spouse who inherits an IRA has one option that is not available to other beneficiaries: rolling the assets into their own IRA and postponing distributions from a traditional IRA until they reach the age of 70 ½. However, the inheriting spouse may have to pay an early withdrawal penalty of ten percent if they take the money before turning 59 ½ from their own IRA. So the inherited spouse should wait until they are at least 59 ½ before doing the rollover.
There are other cautions that apply to inherited IRAs, so if you need more information on the rules that apply to maximize your benefit or that of your heirs, consult with a Florida estate planning attorney.
