Inherited Ira Rules
It is important to understand the inherited IRA rules for the convenience of filing claims and maximizing one’s opportunities of obtaining the benefits from an inherited IRA. IRA, known as Individual Retirement Arrangements, is an individual’s retirement account which upon the owner's death its beneficiaries continue to receive the distribution. It is important to follow the inherited IRA rules to avoid drawbacks to your claims.
- Identify the beneficiaries. Spouses are the usual priority followed by non-spouse beneficiaries and multiple beneficiaries. Most often the traditional beneficiaries of an inherited IRA include the dependents, estates, and any person whom the owner wants to benefit of the IRA when he dies.
- Transferring funds of IRA accounts. One needs to transfer the remaining balance of the IRA account to the beneficiary’s IRA account within 60 days. This will avoid the obligation of paying a penalty. It must be a “trustee-to-trustee” account transfer. There is also a need to rename the account if the IRA account came from the spouse.
- Inherited IRA rules implemented by employers differ. Each employer has their own inherited IRA rules. Some may allow direct transfer to the children when the spouse-beneficiary is already dead. For non-spouse beneficiaries, some employers do not allow direct withdrawal from the owner’s IRA account and requires its transfer to another IRA account. Splitting of accounts is allowed in some companies so it is better to check with the company’s own policies on inherited IRA rules. .
- Maximize your options. More options are extended to spouses in terms of rolling the assets to their own IRA and to postpone the distribution until they turn 70. However, it is important to know other rules governing this option such as paying penalties upon early withdrawal of the asset within a certain period of time. It is best to review all options available to ensure you choose the one that will be most advantageous to the beneficiary.
- Be proactive and carefully examine traps during distribution. This is important for the beneficiary to evaluate if the reduction will offset the income and if it will benefit him more or not. The minimum computed should also be based on your life expectancy. For spouse beneficiaries, one should make sure that the remaining balance is withdrawn in the mandatory year of death.
- Identify the successor beneficiaries. These successor beneficiaries will be the one that will follow the inherited IRA rules in cases where the original non-spouse beneficiary already died. They will follow the inherited IRA rules as if they are the primary beneficiary. They are required to pay any outstanding and scheduled payouts as well to make sure that distributions are made each year.
- Multiple beneficiaries would mean lesser time to stretch the IRA. Though multiple beneficiaries are treated the same as non-spouse beneficiaries, they still have the drawback of lesser time to stretch the IRA since in computing for their distribution, they need to use the oldest beneficiary.