For IRAs with the surviving spouse as beneficiary, the executor/trustee should arrange a spousal rollover or the creation of an inherited IRA
Prior to the Court's ruling, in many states, the inherited IRA
would have been protected from creditors, allowing the son to keep the assets in the family, likely as his father wished.
A "conduit trust" protects the balance of the inherited IRA
from creditors of the trust beneficiary.
The Supreme Court held that funds held in an inherited IRA
are not retirement funds that are exempt from a bankruptcy estate.
The advantage of creating an inherited IRA
is that, if done properly, the Code allows the required minimum distributions from the IRA to be spread out over the life expectancy of the beneficiary, as opposed to that of a presumably older IRA owner, and no premature distribution penalties are assessed against the beneficiary, regardless of his or her age.
Properly "stretching" distributions from an inherited IRA
can provide beneficiaries with significant income, so important differences between "stretching" traditional IRAs and Roth IRAs, to both spousal and non-spousal beneficiaries, is also presented.
As an attractive companion to the Roth conversion opportunity, the Pension Protection Act of 2006 created a "stretch" provision that allows a non-spouse beneficiary who inherits assets in a qualified plan to transfer the balance in that plan directly to an inherited IRA
, and then to elect to spread distributions from that IRA over a lifetime.
There was some confusion about whether a plan had to offer a non-spouse direct rollover to an inherited IRA
She said the change represents "an additional opportunity for taxpayers to manage inherited IRA
It is available at no cost to a range of Fidelity customers, including those over age 59u with a Fidelity Traditional, Rollover or Roth IRA, as well as Inherited IRA
owners of all ages.
The Nessa court affirmed the decision of the bankruptcy court that assets in a debtor's inherited IRA
were "retirement funds" and that the IRA was exempt under Sec.
An inherited IRA
cannot be converted to a Roth IRA, while an inherited employer plan can be.