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4. Take the tax break if you’re entitled to it. An inherited IRA may be taxable, depending on the type. If you inherit a Roth IRA, you’re free of taxes.
In the case of passing on your individual retirement account or an IRA, you have two choices. You can name a beneficiary or multiple beneficiaries to receive the income from …
For example, while most non-spouse beneficiaries must spend down the accounts in 10 years, they only have a required minimum distribution (RMD) each year if the decedent was past the RMD age.
Legislation passed in 2006 allows qualified retirement plans to be amended to offer a "nonspouse rollover". If the rollover is available, a beneficiary may make a direct transfer of the funds to an inherited IRA, which must be in the name of the decedent for the benefit of the named beneficiary. This became effective beginning in 2007.
For single persons, any party may be named beneficiary; however, if no beneficiary is named, then it defaults to the decedent's estate. When owner dies, spouse as beneficiary can roll both accounts into one IRA account. Other beneficiaries will be subject to forced distributions (taxable) over a ten-year period.
The exception is a Roth IRA, which the beneficiary can withdraw from tax-free right away, as long as at least five years have passed since you opened the account. IRA Requirements for Minor Child ...
Naming your kids as beneficiaries might seem wise, but it can cause legal and financial issues. Here’s how to protect your family’s future.
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