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Old 12-30-2016, 07:45 AM
 
Location: Charleston, SC
1,362 posts, read 768,046 times
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Thinking about the beneficiaries on my tax-deferred accounts. I know that the iRS treats it differently whether my Wife inherits my Roth or my IRA, or if my Dear Daughter inherits either of them. I can't remember the details -- but I think DD can't roll an Inheritance over into her own IRA and must start withdrawing.

Does anyone have any experience on this situation ??
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Old 12-30-2016, 08:26 AM
 
451 posts, read 178,560 times
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Quote:
Originally Posted by FiveLoaves View Post
Thinking about the beneficiaries on my tax-deferred accounts. I know that the iRS treats it differently whether my Wife inherits my Roth or my IRA, or if my Dear Daughter inherits either of them. I can't remember the details -- but I think DD can't roll an Inheritance over into her own IRA and must start withdrawing.

Does anyone have any experience on this situation ??
Non Spouse inherited IRA's (your daughter) cannot make the IRA her own. IRS rules stipulate that she must begin withdrawing the money by Dec. 31 of the next year following the death of the original account owner. ( Example...Owner dies today Dec. 30, 2016. Beneficiary must take first distribution by Dec. 31, 2017).

There are currently 3 different options for a non spouse to withdraw the money from an inherited IRA.

1) Withdraw and liquidate the money all at once. This may be feasible if the amount is small or if the beneficiary has an urgent need for the money. This is usually the WORST option from a tax perspective as all withdrawn money is taxed at ordinary income rates. (If the fund is a Trad. IRA...if it is a ROTH then the money is NOT taxed when distributions are taken).

2) Utilize the 5 year rule as it pertains to withdrawals. All funds must be withdrawn within a 5 year period. NOTE: The money does not need to be withdrawn in equal amounts over 5 years. The beneficiary can decide to withdraw a different % in each year or withdraw the entire amount in year 5. Again, if this is a Trad. IRA.....withdrawals are subject to ordinary income tax rates.

3) The best option, especially for large balances, is withdrawing the money over the beneficiary's lifetime using the single life expectancy table provided by the IRS. This is commonly referred to as a "stretch IRA." This means that each year an ever increasing % is withdrawn until the money is exhausted. If the beneficiary dies before then, the remaining balance becomes part of the beneficiary's estate and passes to his/her heirs and the process begins again.

If the IRA is held by one of the large brokerage houses....i.e. Fidelity , they are very aware on how to properly title the account to reflect that it is an inherited IRA. They will then ask your daughter to choose an option for future withdrawals. Not really a complicated process.
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Old 12-30-2016, 08:47 AM
 
Location: Charleston, SC
1,362 posts, read 768,046 times
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Thank you very much for that explanation. So it is not a good idea to name my daughter as a beneficiary on my IRA, correct ?? I currently have DW as 100% Beneficiary on both my T-IRA and Rollover IRA. I'll leave that as is.

In the event of my demise, can DW just roll it into her IRA without any Tax consequences until her RMD's start ??

How would the Tax Man treat an Inherited Roth account ??
The Original Owner (me) can be withdrawn Tax-Free. If it's inherited.......is it taxed as Ordinary Income ??

Thanks again for your help with this. One of my Year-End goals is to check all the Beneficiaries.
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Old 12-30-2016, 08:59 AM
 
Location: SoCal
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If it's Roth then there is no tax for heirs also. I name my kids as secondary beneficiaries on all my IRA accounts.
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Old 12-30-2016, 09:09 AM
 
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Originally Posted by NewbieHere View Post
If it's Roth then there is no tax for heirs also. I name my kids as secondary beneficiaries on all my IRA accounts.
Bada Bing!
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Old 12-30-2016, 10:34 AM
 
Location: OH>IL>CO>CT
5,237 posts, read 8,409,707 times
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In addition to the advice above, here is link to good article with same and more details re Inherited IRAs.

8 Ways To Go Wrong With An Inherited IRA | Bankrate.com
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Old 12-30-2016, 10:42 AM
 
Location: Charleston, SC
1,362 posts, read 768,046 times
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reed --
Good Article from Bankrate -- it's all spelled out right there.
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Old 12-30-2016, 10:51 AM
 
Location: Mayberry
32,064 posts, read 13,094,401 times
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[quote=reed303;46662795]In addition to the advice above, here is link to good article with same and more details re Inherited IRAs.

8 Ways To Go Wrong With An Inherited IRA | Bankrate.com[/QUOTE

Okay, I read that, but what about 2 beneficiaries equal, myself and my brother. Just take the distribution on the five year plan and split it? I would be doing all the paperwork and dealings with all properties.
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Old 12-30-2016, 11:40 AM
 
Location: SoCal
13,235 posts, read 6,340,776 times
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[quote=tasmtairy;46662957]
Quote:
Originally Posted by reed303 View Post
In addition to the advice above, here is link to good article with same and more details re Inherited IRAs.

8 Ways To Go Wrong With An Inherited IRA | Bankrate.com[/QUOTE

Okay, I read that, but what about 2 beneficiaries equal, myself and my brother. Just take the distribution on the five year plan and split it? I would be doing all the paperwork and dealings with all properties.
Look at the tax rate. If it's a sizable amount you might want to stretch it. So the answer depends on the size.
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Old 12-30-2016, 12:22 PM
 
527 posts, read 1,091,084 times
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Be advised

The "Stretch IRA" is being looked at to be eliminated next year.
No plans yet, but it's in the cross hairs

A way to get the taxes due on that IRA paid now, rather than over a young person's life.
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