Ask Kim


What to Do After Inheriting an IRA
[QUESTION]My mother just passed away at the age of 60. She has $110,000 in a traditional IRA, and my sister and I are the beneficiaries. The bank said it will have to open an IRA account for each of us and then distribute the $110,000 equally between us. Do we need to keep the money with that bank or can we transfer it to another brokerage firm? Also, when do we need to withdraw the money? I'm 39 years old.

[ANSWER]Because you and your sister are non-spouse beneficiaries, the bank will open inherited IRAs for each of you and transfer the money directly into the two accounts (the options are different for spouses who are beneficiaries and can roll the money into their own IRAs). You can keep the IRA at that bank or transfer it to a different IRA custodian, such as a brokerage firm or mutual fund company. Money from an inherited IRA must be directly transferred from the old account to the new one, so check with the new administrator to find out what steps you need to take to do this. "The new IRA custodian must be willing to accept inherited IRAs," says Christine Russell, senior manager of retirement at TD Ameritrade. You may also have to complete special paperwork for the transfer.

SEE ALSO: Test Your Retirement IQ

As a non-spouse beneficiary, you have two options for taking the money: You can withdraw all the funds from the inherited IRA within five years, or you can start taking periodic payments by December 31 of the year following the year of your mother's death.

Given that you are only 39, you're probably better off taking periodic payments. That's because your required withdrawals will be smaller under this method, so you'll have more money left in the account to grow tax-deferred for years.

The periodic payments for inherited IRAs are similar to required minimum distributions for IRA holders over age 70½, but they use a different life-expectancy table to calculate the annual withdrawals (Table 1 single life-expectancy table, in Appendix B of IRS Publication 590-B, Individual Retirement Arrangements).

Make sure the IRA custodian knows you want the periodic payment option. Otherwise, its IRA documents may require you to withdraw the money within five years, says Russell.

Whatever option you choose for withdrawals, the distributions will be taxable, except for any from nondeductible contributions. With an inherited IRA, though, you won't have a 10% penalty for early withdrawals before age 59½.

For more information about the rules, see Get the Most From Inherited IRAs.

SEE ALSO: Calculate Your Required Minimum Distribution From IRAs


Copyright 2017 The Kiplinger Washington Editors

More from

See more stories in this category

Back to Previous Page

Ask Kim

When to Take Your First Required Minimum...

[Question]I turned 70 this year, and I am wondering if I must take an RMD from my IRA this year or if...

Land a Retail Job for the Holiday Season

[Question]I'd like to get a part-time job during the holiday season and earn some extra money. What is...

The Big Pension Decision Military Service...

[Question]I've been reading about the new military blended retirement system. When do I need to decide...

How to Qualify for a Health Savings Account...

[Question]I'm choosing my health insurance policy for 2018 during open enrollment now. How high does...

A Child-Care Tax Break for Working Parents

[Question]My husband and I will be having our first baby this spring, and we'll be paying for child...

Next Page >
Provided by Kiplinger