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- Jan
An Inherited IRA or a Beneficiary IRA as it is sometimes known can be opened when an account holder dies. The account is transferred to a named beneficiary from an exiting Tradition, Roth or Simple IRA account. This means that the original contributions stay tax-free and can only be released one the IRS requests it.
The new account holder must be someone who was named by the original account holder so that they could open a Beneficiary IRA. A new IRA that is opened in the spouse’s name can be treated as one of their own accounts.
If the beneficiary is not a spouse then they cannot use the account as they wish and they are not allowed to move the funds to their own account. Non-spouse beneficiaries are also not allowed to keep the existing IRA account open. A Beneficiary IRA can be either a Roth, Simple or Traditional account but more funds cannot be added to the new account. The recipient will be asked to take an RMD (Required Minimum Distribution) but contributions can be deferred until this time.
There are certain rules pertaining to the new accounts which are based on factors such as the type of the original account, the type of the new account and the age of the account holder when they passed away.
There were new rules brought out in 2001 which makes the whole process and the advantages of a beneficiary IRA a lot clearer and simpler. Previously the funds in an Inherited IRA had to be depleted within a 5 year period. It is now the case that the funds can be distributed over a period of many years, frequently over many decades. This way the funds can continue to be tax deferred which is an advantage for the beneficiary.
The new rules also meant that the original account holder could pay smaller RMD’s potentially leaving a larger amount in the account for the beneficiaries to inherit. It also meant that a spouse could either use the new account for themselves or add their own beneficiaries. This would result in the beneficiaries receiving that account one the spouse had died too.
Choosing the best retirement plan for you is crucial to ensure tat you are well catered for after you retire. The best retirement plan will have all the benefits you need to be able to survive after you stop working. It is not easy to live on just a basic pension so a boost is a bonus.
This may all seem quite confusing but it is in fact very simple. If you would like to find out more about Beneficiary IRA accounts, you can get your questions answered online. Alternatively you could speak to a financial advisor who will present the information to you in easy to understand terms.
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