You’ve Just Inherited A Retirement Account…Now What?

Congratulations! You've inherited a retirement account! What do you next? Here are three options.

May 05, 2014

BPAS-5-5-14-Retirement sign

Congratulations! You’ve inherited a retirement account! What do you do next? Here are three options.

Option 1:  Open An Account Called An Inherited IRA

With this option, you can rollover the retirement plan account you’ve inherited to this new account.  That way, the assets will continue growing on a tax-deferred, or in some cases, tax –free basis.

Once the account is opened, you can generally begin withdrawing immediately without paying any penalty usually associated with the early withdrawal of retirement savings.

IRS Required Minimum Distribution (RMD) rules do require that distributions begin in the year following the year of the original account holder’s death. Generally, minimum distributions may be calculated over your life expectancy.  You may choose to withdraw money from the account each year, or elect to withdraw the balance of the account completely by the end of the 5th year following the death of the original account holder.

Option 2: Treat the Inherited Retirement Plan Assets as Your Own (Surviving Spouse’s Only)

If you inherited the assets from your spouse you may choose to treat the account as your own. Monies in this account may be combined with other retirement accounts that you may hold. If you make withdrawals prior to age 59½, there may be penalties for the early withdrawal from the account.

Option 3:  Take The Assets As A Lump Sum

In this option, all the money in the account is distributed to you.  However, the entire distribution is taxable to you in the year of withdrawal, and may result in moving you into a higher tax bracket.

If you need any assistance with these options, or have more questions please contact us today!