If the account you inherit was a 401(k) or traditional IRA and the decedent was at least 70 ½ years old: Contact the financial institution that holds the account to determine if the decedent had already taken the required minimum distribution for the year they died. If they did not, you will need to do so.
If you are the spouse of the deceased account owner: You can roll an inherited IRA into your own IRA to postpone taking distributions until you turn 70 ½. If you take distributions before you turn 59 ½, you may be subject to early withdrawal penalties. You can also leave it where it is and postpone taking the required minimum distribution until your deceased spouse would have turned 70 ½.
If you are not the spouse: You must first re-title the account to name you as the beneficiary. You will then be required to start taking required minimum distributions, which can be stretched out over your lifetime, beginning by Dec. 31 of the year following the death of the account owner.
If there are secondary beneficiaries: You have the option of disclaiming the inherited account, which will allow it to pass directly to the secondary beneficiaries. This is usually done to avoid creditors or to minimize income or estate taxes.
If there are multiple beneficiaries: You are allowed to split the account into separate IRAs for each beneficiary.
If you would like to learn more about how to treat your inherited IRA / 401K, or what can be done about the way your family will inherit your IRA / 401K, give us a call to setup a Family Wealth Planning Session, or continue browsing our website: www.FamilyWT.com.
