What Can I Do with an Inherited IRA?

Understanding Your Options for an Inherited IRA

If you’ve become the beneficiary of an IRA or other retirement account, it’s important to know your options.

Option 1: Taking a Lump-Sum Distribution

You can take the money out in one lump sum. This requires opening an account called an inherited IRA in your name for correct IRS reporting. That lump sum may be taxable depending on whether the original contributions were pre- or post-tax.

Option 2: Leaving the Funds in an Inherited IRA

Or you can open an inherited IRA and leave it alone to grow tax-deferred. You can’t make any additional contributions and must take required minimum distributions based on when the deceased would have turned 70 and a half. With this option, you can name your own beneficiary to pass it on.

Special Rules for Spousal Beneficiaries

If your spouse left you the account, you’re allowed to roll those assets into your own retirement account and follow your account’s distribution rules.

Option 3: Disclaiming an Inherited Retirement Account

You could also disclaim the account or not accept it. The assets can then pass on to alternate beneficiaries. If you disclaim, it must be done before taking possession of the account and within nine months of the original owner’s death.

Get Professional Guidance for Inherited IRA Planning

To learn more about what to do with an inherited retirement account, contact us.