What to do with an inherited IRA from a spouse?

As the U.S. population ages, it is common to inherit an IRA from mom or dad, an aunt or uncle, or even a sibling or friend. This often happens when you are in or near retirement. You have a few choices on how you treat this IRA. (If you inherited an IRA from your spouse different options apply.)

Can you roll an inherited IRA into your own IRA?

Many people think they can roll an inherited IRA into their own IRA. Unfortunately, if you inherited an IRA from someone who is not your spouse you cannot roll the account into your own IRA or treat the IRA as your own.

Do you have to take distributions from inherited IRA?

As a beneficiary, you must take minimum distribution amounts from the inherited IRA each year according to your life expectancy using a specific set of rules. These distributions are called Required Minimum Distributions (RMDs). 4

When to cash in an inherited IRA from a trust?

A Trust or Other Entity Inherited the IRA. If you represent a trust or other entity that is not an individual person a different set of rules will apply. You can cash in the IRA and it is likely you will have to do so within five years.

Can an adult child contribute to a Roth IRA?

Qualifying to contribute for a Roth IRA requires having earned some income during the year. As long as your adult child meets this requirement, you can gift him cash so that he can use the money for his Roth IRA, but there are contribution limits to keep in mind.

What happens if a daughter refuses to accept an IRA?

If the daughter accepted the money but died before giving it to her son, estate tax may be an issue. If the daughter instead refuses to accept the IRA money, the money would instead be distributed to her son without any adverse tax consequences.

What happens when an adult child inherits an IRA?

The tax benefits disappear forever once you distribute cash from an inherited IRA, with the distribution amount being characterized as taxable income. While the Stretch provision is gone for the majority of adult children, it is important to distribute this inherited IRA in the most tax-efficient manner, based on your individual circumstances.