The theme this week on the Retirement Quick Tips Podcast is: Inherited IRAs

Today, I’m covering the basics of Inherited IRAs, since understanding these accounts lays the groundwork for what I’ll be covering later in the week. 

According to Investopedia, “An inherited IRA is an account that is opened when someone inherits an IRA or employer-sponsored retirement plan [like a 401k] after the original owner dies. The individual inheriting the IRA (the beneficiary) could be anyone—a spouse, a child, another relative, or unrelated party or entity, like an estate or trust. 

Rules on how to handle an inherited IRA differ for spouses and non-spouses. And that’s the rub of these new rule changes. If you’re married and your spouse dies, inheriting an IRA is pretty straightforward, because you would just transfer the deceased spouse’s IRA into your own name, and things would continue as they were before. The account becomes yours and you would start taking required minimum distributions (aka RMDs) if you’re older than 72. 

If you’re a non-spouse beneficiary of the IRA, it’s a whole different story. Let’s say you’re a 50% beneficiary on a $1,000,000 IRA that you inherit from your mom after she passes. You open an inherited IRA, and deposit your ½ - $500,000. Prior to the rule changes in 2019, you could take those RMDs over your remaining life and spread those withdrawals over decades. Now, you need to withdraw all of the funds and importantly, pay all of the income taxes on those withdrawals within 10 years. 

This is bad news bears for your taxes, and I’ll talk more about that tomorrow. 

That’s it for today. Thanks for listening! My name is Ashley Micciche and this is the Retirement Quick Tips podcast. 

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Tags: retirement, investing, money, finance, financial planning, retirement planning, saving money, personal finance