An inherited Individual Retirement Account is not a unique product; it’s simply an IRA inherited from a deceased family member.
Under current regulations, people who have inherited IRAs can stretch their withdrawals across their own lifetime. That means the assets could potentially increase in value, tax-deferred, for decades. Despite that, many families unknowingly cash in the account, losing the possibility of a later payout. And there’s no way to get the money back into the IRA after it’s been cashed out.
If you inherit an IRA, it’s important not to do anything until you know what rules apply. It’s not like your own IRA, from which you can withdraw money and redeposit it in another IRA within 60 days without penalty. With an inherited IRA, all movement of money must be from one IRA custodian to another – a “trustee to trustee” transfer. Note that it’s always wise to check everything received from the custodian to avoid misunderstandings later.
Unless you’ve inherited the IRA from a spouse, you must retitle it yourself; don’t count on the custodian’s forms to do it for you. The original owner’s name must be included. For example, it could be titled “John Doe, deceased (date of death), inherited IRA for the benefit of Jane Doe Smith, beneficiary.” If two or more people are named as beneficiaries, you should ask the custodian to split it into separate IRAs. That avoids investment squabbles and allows younger heirs to stretch out withdrawals over a longer period.
The tax and legal information in this article is merely a summary of our understanding and interpretation of some of the current laws and regulations and is not exhaustive. Investors should consult their legal or tax counsel for advice and information concerning their particular circumstances.