Inherited IRAs Bring Special Tax Issues

2016-02-11T10:30:35+00:00

When inheriting an IRA, a surviving spouse has several options. He or she can remain the beneficiary of the account. As an alternative, if the spouse is the sole beneficiary, he or she can instead treat the inherited IRA as his or her own.

If there are multiple beneficiaries, the account can be divided up so the spouse’s share is in its own account. When a spouse makes this decision, the IRA is simply retitled in his or her name. Since the account is then considered the spouse’s, he or she can then name new beneficiaries.

But be careful: Generally, withdrawals are subject to a 10 percent federal income tax penalty if the spouse has not reached age 591/2. In addition, there can be penalties if the spouse does not take required withdrawals at the proper time. For example, the first required minimum distribution must be taken by the spouse by April 1 of the year after he or she turns 701/2. In other words, if the surviving spouse turns 701/2 this year, the minimum distributions must start by April 1 of next year.

About the Author(s)
Hill, Barth & King LLC has prepared this material for informational purposes only. Any tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or under any state or local tax law or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. Please do not hesitate to contact us if you have any questions regarding the matter.

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