Inherited IRA

An inherited Individual Retirement Account (IRA), or beneficiary IRA, is an account opened by a person who is entrusting an IRA or employer-sponsored retirement plan after the original owner passes away. Whether you're setting up an IRA for family members or you've recently inherited one of your own, the first step is to understand the specific rules associated with the account. Gaining further insight can help you make sound decisions about your legacy after death or your financial future as a beneficiary. At Park Place Financial, our team of specialists can provide the guidance you need to move onward. 

Transferring an Inherited IRA

Selecting beneficiaries is an integral part of the estate planning process. This allows you to designate where your assets go when you pass and ensure your wealth is managed precisely according to your wishes. Ensuring all documentation is in place is a critical step. Without a specific beneficiary listed, your assets could go to an unintentional party. Your IRA may be left to a person or entity, such as a:

  • Spouse
  • Children/grandchildren
  • Charity
  • Estate

While making arrangements through our financial professionals, we can help you understand what happens to your wealth when it's distributed to a loved one. Depending on your beneficiary's relation to you and the type of IRA involved, the inherited IRA is governed by several rules and tax laws.

Spousal Beneficiary

Your spouse has the power to roll over the funds into his or her IRA, designate new beneficiaries, and begin the process all over again. Per inherited IRA rules, your spouse may also elect to delay benefits for a certain length of time and then receive them in installments. 

Non-Spousal Beneficiary

Beneficiaries other than your spouse cannot roll the inherited IRA funds into their own IRA. They also cannot make contributions to the account. Non-spousal beneficiaries may not have to pay an early withdrawal penalty on distributions, but they must pay income tax on withdrawals on inherited traditional IRAs. Earnings from inherited Roth IRAs are tax-free.

Our team can also help you establish an IRA Legacy Trust. Also referred to as an inherited IRA trust, this type of document helps protect your wealth and ensures it's passed to the next generation. When you pass on, a designated trust becomes the beneficiary of your IRA. There are several reasons our clients select this avenue, some of which include:

  • Minimized estate taxes
  • Divorce protection
  • Spendthrift protection
  • Creditor protection

Let a financial planner help you find the most beneficial way to distribute your assets. We can help you develop a complete financial picture that factors in Required Minimum Distributions (RMDs), age limits for distributions, the most current changes in tax law, and other key inherited IRA rules.

Inheriting an IRA

An inheritance may be unexpected but taking a proactive approach can help you make informed decisions that coincide with your personal financial goals. If you've inherited an IRA, your first step is to seek guidance from a qualified financial advisor with your best interests at heart. At Park Place Financial, we're happy to discuss the impact an inheritance has on your financial future, including the following areas:

  • Estate plan
  • Life insurance
  • Investment portfolio
  • Cash flow needs

While you may be eligible to receive a distribution in one lump sum, there are several benefits to maintaining an inherited IRA. These include:

  • Tax-deferred growth: An inherited IRA is a tax-advantaged account. If you elect to open one, you can take advantage of the potential growth.
  • Scheduled withdrawals: You can receive distributions on a set schedule from your inherited IRA. If you're required to take them, they can be set to withdraw automatically. 
  • Distribution allocation: You also may have the option to spread out IRA distributions into smaller increments over time. This can help preserve your assets and minimize tax liability.

Let our professionals help you incorporate a recently inherited IRA into your overarching financial plan. At Park Place Financial, we can help you understand current taxes on inherited IRAs and how they may affect your bottom line as a beneficiary.

Schedule a Consultation at Park Place Financial

If you're passion on or receiving an inherited IRA as a spouse, parent, or loved one, let us help you take the next step. Our experts can walk you through different scenarios that might benefit you or your loved ones and help pave the way toward financial wellbeing. 

For more information about inherited IRA rules, connect with the team at Park Place Financial in Bellaire, Texas today.