What to do when you inherit a traditional IRA?

Inherited IRA rules: 6 key things to know

1. Treat the IRA as if it were your own, naming yourself as the owner.
2. Treat the IRA as if it were your own by rolling it over into another account, such as another IRA or a qualified employer plan, including 403(b) plans.
3. Treat yourself as the beneficiary of the plan.

The IRS doesn’t allow you to roll the money from an inherited IRA into one of your existing accounts. Instead, you’ll have to transfer your portion of the assets into a new IRA set up and formally named as an inherited IRA; for example, (Name of Deceased Owner) for the benefit of (Your Name).

What are the rules for inheriting a traditional IRA?

Inherited Traditional IRA Rules for Spouses. The IRS lists three options for spouses who inherit a traditional IRA. If that’s you, the first option is to designate yourself as the account owner. You’ll put the account under your name (also known as “retitling”). This way, the account is yours to contribute or withdraw from.

What should I do with my inherited IRA?

your inherited IRA. You have two main options after inheriting a retirement account. Withdraw all of the money and receive a whopping tax bill, or move the inherited 401 (k) or IRA into a Beneficiary IRA (aka Inherited IRA) and defer taxes until you make withdrawals.

Can a beneficiary of an inherited IRA be an owner?

Your second option is to roll the inherited account – tax-free – into an IRA you already possess. If you have an employer retirement plan, you can roll the inherited IRA into that account, as well. In both of these situations, you become the owner of the IRA. The third option is to treat the account as a beneficiary, not as the owner.

Is the tax treatment of an inherited IRA the same?

Importantly, the tax treatment of the IRA remains the same from the original account to the inherited IRA. So accounts made with pre-tax dollars (as in a traditional IRA) or after-tax dollars (as in a Roth IRA) are still treated the same way in an inherited IRA.