IRA Minimum Distribution on Inheritance
May 30th, 2009
In general, obtaining an inheritance is a good thing for most people. Even when it is a retirement account, the benefits can result in a fine windfall. You have a unique opportunity to continue a tax deferred investment for your own retirement fund. Through this strategy, the value of the inheritance will be able to increase with time. This is absolutely good news when most people are concerned about having enough money to be able to live on when they choose to retire. Nonetheless, if you are unaware of the IRS regulations, you might have to pay a significant amount of the inherited IRA minimum distribution in penalties and taxes.
The most important problem with understanding the inherited IRA minimum distribution measures is that for the average person, the explanations are not always easily decipherable. You would have more luck finding a needle in the Black Forest. Further, the tax ramifications of inherited IRAs are new because traditional IRAs are also fairly young and people have only begun receiving these funds as an inheritance in the past few years. The tax laws need to modernize with the traditional IRAs as well as the Roth IRAs that you can possibly inherit.
There are two basic types of inherited IRA minimum distribution scenarios: spousal inheritances and non-spousal inheritances.
With a spousal inheritance, the rules are a little more simple because of the special privileges made available when you are married. There are several options which can be applied to avoiding any penalties and taxes. You can roll over the money into your existing IRA account, or even choose to open a new one. If you are younger than 59 and a half years old, you can remain a beneficiary. Your deceased spouse’s name will also remain on the account. This will allow you to access some of the funds and avoid the 10 percent early withdrawal penalty.
An inherited IRA minimum distribution is handled completely differently when you receive the account from someone other than your spouse. Firstly, make sure that you are identified as a designated beneficiary by your loved one, rather than by simply applying the label of my estate or my living trust. Another mistake is assuming that leaving the IRA beneficiary space blank will automatically distribute the funds as part of the will. When an IRA is transferred to a trust or estate, that taxes must be paid within five years. Being a designated beneficiary affords you you more alternatives for how withdrawals are handled, and will minimize your tax burden to the IRS.
Basically, you want to handle an inherited IRA with added care. You are not trying to avoid paying taxes; as you simply do not want to pay more than you have to because of faulty information. Talk to a financial planning and tax advisors in order to get the proper guidance.
Categories: General Interest |
