The decedent's retirement benefit must be rolled to an "inherited IRA
" or "beneficiary IRA." Combining the proceeds with the beneficiary's personal retirement account will disqualify the benefits and make them fully taxable.
Having someone that they know and they know their parents trusted will make opening inherited IRA
accounts and other types of accounts much easier.
It can be made from a Roth IRA (although Roth distributions generally are already tax-free and are not subject to RMDs), an inherited IRA
, a rollover IRA, or a qualified employer plan that permits employees to make voluntary contributions to separate accounts or annuities (a "deemed IRA" under Sec.
The Supreme Court held in June 2014 that an inherited IRA
is not deemed as "retirement funds" under Bankruptcy Code section 522(b)(3)(C) and is not exempt from creditors [Brandon C.
If you don't want the money, you can always disclaim (refuse to accept) the inherited IRA
or plan funds.
If you name your spouse as the beneficiary of your IRA he or she can convert it from an inherited IRA
by "rolling it over" into his or her own IRA The "roll-over" IRA should offer the same bankruptcy protection as your spouse's own IRA This, however, does not apply to the children.
Non-spouse beneficiaries of IRA accounts will have to pay taxes on money received from an inherited IRA
at their own tax rate.
As of 2008, non-spouses are allowed to roll assets inherited from a qualified retirement plan into an inherited IRA
on a tax-free basis, Goffe said, including some 403(b) and 457 plans.
The way we could do that was with an inherited IRA
. He asked, "What is that?" I told him that an inherited IRA
would allow him to roll his mother's 401(k) into an IRA in his name.
This plan avoids the inherited IRA
's being taxed to the heirs at a higher tax rate.
Currently, beneficiaries have the option of taking an inherited IRA
via a lump sum or through stretching, which allows them to take required minimum distributions based on their life expectancy.
Yet it's the state income tax issues that are sometimes even more challenging, especially if the IRA owner moves to a new state to retire or if the owner dies and the beneficiary has an inherited IRA
. Let's take a look at a few situations to better understand some of the challenges confronted by an IRA owner or beneficiary.