Critical items to consider when you inherit an Individual Retirement Account (IRA)

There are a few crucial steps to take when you inherit a non-spousal IRA.

First, you will need to determine whether or not the original account holder was required to take minimum distributions (RMD) in the year of their death. If a RMD was required, you must confirm the distribution was taken prior to last day of the year in the year of death. If the RMD was not taken, the beneficiary must take the distribution on their behalf.

If you missed taking the RMD in the year of death please see our article on What to do if you missed your Individual Retirement Account Required Minimum Distribution.

Second, you’ll need to determine which distribution method to utilize. Inherited IRA have special rules for RMD’s. The traditional IRA RMD rules, distributions after age 59 ½ and RMD’s after age 70 ½ do not apply to inherited IRAs/ RMD’s must begin imeadiatly under one of 3 methods:

  1. lump sum

  2. 5 year method

  3. beneficiary life expectancy

Each of these methods results in a different tax and financial impact, for which you willl want proper planning and considerations in place to avoid any surprises. Our office works with inherited IRAs often and can assist with this process.

Contact your KS-LLP professional to learn more about inherited IRAs and proper tax planning for the distribution method you select.