Inheriting money from a 401(k) or an IRA differs from inheriting other types of property. The Internal Revenue Service has strict rules on these plans, and if they are not followed, the heir stands to lose tax benefits and flexibility. Spouses are treated specially when they inherit a retirement account, and they get more options. If a person is a beneficiary of their spouse’s IRA, an estate planning lawyer in De Pere, WI will tell them that they can:
?? *?????? Withdraw the entire amount and pay income tax
?? *?????? Roll it into their Roth or traditional IRA
?? *?????? Put it into an inherited IRA
Below is a discussion of these options, and information on how a lawyer can help.
Taking an Immediate Withdrawal
Even if a person is under 59, the age at which withdrawals can be made without a penalty, they can take money from an inherited IRA without a penalty for early withdrawal. However, they will have to pay income taxes on the money they take.
Rolling an Account Into an IRA
Only a surviving spouse can roll inherited assets into an IRA. If this is done, the funds are treated the same as those in a traditional IRA. If a person inherits a traditional IRA or 401(k), they can roll it into a Roth IRA of their own.
Traditional IRAs
The biggest benefit of a traditional IRA is that the minimum distribution is based on age or upon the combined life expectancies of a couple. This makes the annual distribution less, so the owner can leave assets to grown on a tax-deferred status. Required minimum distributions don’t begin until the owner reaches age 70 and one-half.
Opening Inherited IRAs
The owner can convert an existing 401(k) or IRA into what is referred to as the inherited IRA. These are a good choice for those who haven’t turned 59 and one-half yet and who want early funds access without a penalty.
Getting Advice From the Experts
The rules on inheriting tax-deferred retirement accounts are complicated, and they change on a regular basis. Before a person takes action or withdraws money from the inherited account, they should contact Brabazon Law Office LLC, where they will be able to speak to an estate planning lawyer in De Pere, WI for case-specific advice.
