Inherited IRA Strategy
The IRS gives you the deadline. You decide the strategy.
What This Means
What should you do when you inherit an IRA?
Before you withdraw anything, understand the rules and build a strategy.
Many non-spouse beneficiaries who inherit an IRA are subject to the 10-year rule, which generally requires the inherited account to be emptied by the end of the 10th year following the original owner’s death. But that doesn’t mean everyone should simply wait until year 10 to take the money.
If you inherit a Traditional IRA, distributions are generally taxable as ordinary income. That means when you take withdrawals can have a significant impact on how much you ultimately keep.
Your current income matters. Your expected future income matters. The size of the inherited IRA matters. And the amount the account could grow over the next decade matters.
Required minimum distributions may also apply during the 10-year period depending on the circumstances, including when the original account owner died relative to their required beginning date.
That’s why I don’t believe an inherited IRA should simply be put on autopilot.
The IRS gives you the rules. You still have to build the strategy.
The goal should be to look at the entire 10-year window and determine when taking distributions makes the most sense for your individual tax situation.
Common Questions
Can an inherited IRA push me into a higher tax bracket?
Yes. Taxable distributions from a Traditional inherited IRA generally count as ordinary income. A large withdrawal could increase your taxable income and potentially push some of your income into a higher tax bracket.
Can I roll an inherited IRA into my own IRA?
Generally, a non-spouse beneficiary cannot treat an inherited IRA as their own IRA. Different rules apply to surviving spouses, who generally have more options.
What should I do with the investments inside an inherited IRA?
Remember This:
The IRS gives you the rules. You still have to build the strategy.