Special tax rules for inherited IRAs
Normally, retirement plan distributions made to a nonspouse beneficiary after the account owner’s death are taxable at the time they are received and cannot be rolled over to the beneficiary’s own IRA. However, employer-sponsored retirement plans are required to offer nonspouse beneficiaries the option to roll over inherited amounts tax-free in a direct (trustee-to-trustee) rollover to an inherited IRA. No taxes will be due on the inherited IRA rollover until the beneficiary receives a distribution from the inherited IRA. An inherited IRA is an IRA that has been acquired by a beneficiary on the death of someone other than a spouse.
The following special rules apply to an inherited IRA:
- • The IRA must be a brand-new IRA set up for the specific purpose of receiving the inherited account.
- The IRA must be specially titled in the deceased account owner’s name.
- No other contributions may be made to the IRA.
- No other amounts may generally be rolled into or out of the IRA.
- Minimum required distributions will need to be made over the beneficiary’s life expectancy starting the year after the IRA owner’s death.
Still have questions? Contact the tax planning expert at Ciuni & Panichi. James Komos at 216.831.7171 or jkomos@cp-advisors.com for more information and new ways to save.
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