Proceed with Caution if You Inherited an IRA

Individual Retirement Accounts, or IRAs, are commonly included in the estate assets of a decedent. If you have recently inherited an IRA, be sure that you proceed with caution to ensure that you get the most out of your inheritance.

A beneficiary often makes the mistake of treating an inherited IRA the same way as he or she would treat his or her own IRA. The problem with this is that the rules that apply to an inherited IRA are frequently not the same as the rules that apply to an original owner IRA. If you have recently inherited an IRA, take the time to consult with your estate planning attorney. In the meantime, consider the following general information:

  1. Do not move the funds as you might if the IRA was yours. Moving the funds to another IRA could trigger a penalty even if done within 60 days.
  2. Although you should not move or transfer funds before obtaining professional advice, you may be required to make a distribution before the end of the year, if the decedent was over the age of 70- ½ when he or she died.
  3. If you inherited the IRA from your spouse, you may be able to combine it with your own existing IRA; however, if not done properly, then you could incur a significant penalty.
  4. Check the beneficiary forms. Hopefully, the decedent named multiple beneficiaries which will allow for maximum flexibility. A spouse, for example, can disclaim the funds and pass it down to future generations who can then stretch out the benefits. If the estate itself is named as the beneficiary though, the flexibility is almost non-existent, and a probate could be required.