Inheriting an IRA can be a complex situation due to the special tax treatment given to the person who invested in the IRA during his or her lifetime. There are specific rules and timeframes to adhere to when this asset is transferred by inheritance to avoid losing tax benefits or triggering penalties.
From your spouse:
You have a couple of options when you inherit a spouse’s IRA. The first option is to transfer all the assets into your own IRA. You then follow the rules of withdrawal as if they had always been your assets. Or you can choose to take a lump sum distribution of all the assets in the inherited IRA and pay the required income taxes on those distributions.
From someone other than your spouse:
When you inherit assets from someone who is not your spouse, you are not able to just roll the account over into your IRA. In addition to taking a lump sum distribution there are options for a five-year withdrawal of life expectancy withdrawal. All the options face tax consequences and should be discussed with an experienced estate planning attorney.
At Stouffer Legal, we can assist those in the Greater Baltimore area who inherit IRAs through estate administration. Please contact us at 443-470-3599 to discuss your options.