Entrust Learning Center > Keyword: beneficiary > Inherited IRA Assets: Making the Best Choice

Inherited IRA Assets: Making the Best Choice

You have inherited an IRA Traditional or Roth does not matter. These assets are valuable assets,

By: Keith Stunek

By: Keith Stunek

but the value can greatly increase or diminish depending upon the choices you make as a beneficiary. 

Making the right decisions can be challenging at a time when you have stressful matters on your mind.  You may have found the rules for inherited IRAs unexpectedly confusing.

Here are some key things to keep in mind to protect the value of your IRA.  

If you choose to take a total distribution of the assets and the IRA is a Traditional IRA, you will experience taxation but no penalty for early withdrawal, even if your under 59 1/2. 

If the IRA is a Roth IRA, you may receive the assets tax – free, if the individual you inherited the assets from had maintained the IRA for 5 years.

You may also choose to take annual distributions over your own life expectancy.  This gives you the ability to make your own investment choices, allowing the IRA to grow while satisfying the IRS rule of taking annual distributions from the IRA as a beneficiary.  You will need to commence these distributions no later than December 31 of the year following the year of death if you are a non-spouse beneficiary. A spouse can move the IRA into their own IRA and maintain control as an IRA holder.

Another choice is to draw the IRA value down to zero within five years following the year of death.  This will maintain the value of the IRA for a small period of time while you decide.

As a beneficiary, you have choices - the choice to maintain the value and importance of the tax benefits with an IRA for the short time or long term and the choice to decide where your inherited IRA is held during this pay out time.

Individual choice is the whole reason Congress created IRAs.

Keith Stunek is Director of Training and Development for The Entrust Group. He can be reached at kstunek@theentrustgroup.com.

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