Anyone know about Inherited IRAs?

[MichelleinMaine]

We are trying to sort through the papers for my MIL who recently passed away. Our best option for her IRA seems to be putting it in an Inherited IRA. I'm trying to sort out from the paper work (and web searches) exactly what that is. (Disclaimer we have a friend who is a financial planner, but is out of town. Trying to wrap my brain around the process in the mean time.)

My understanding is it's an account that will pay of scheduled payments based on DH's life expectancy? (Is that right?) I do not understand if we are supposed to go somewhere/do something special to set it up? Or just to our own bank and they will set up an IRA to do this? Help!

 

[freckles and boo]

My husband was the beneficiary of his father's IRA. He is 42 years old and is required to withdraw a minimum annually based on his age and life expectancy (he can withdraw as much as he would like but a minimum is required). We pay taxes on all withdrawals. The IRA was originally with Vanguard. We did the paperwork with them then transfered it to another brokerage company. Our children are now the beneficiaries on this particular account.

 

[*pixie*dust*]

We are trying to sort through the papers for my MIL who recently passed away. Our best option for her IRA seems to be putting it in an Inherited IRA. I'm trying to sort out from the paper work (and web searches) exactly what that is. (Disclaimer we have a friend who is a financial planner, but is out of town. Trying to wrap my brain around the process in the mean time.)

My understanding is it's an account that will pay of scheduled payments based on DH's life expectancy? (Is that right?) I do not understand if we are supposed to go somewhere/do something special to set it up? Or just to our own bank and they will set up an IRA to do this? Help!

You can do this at your own bank or credit union. Additionally you have the option of taking a lumb sum and paying all the tax in one year or taking payments over a 5 year plan. The life expectancy plan is only one of the options. It all depends on what is best for you from a tex persepective.

 

[MichelleinMaine]

Thanks all- so is the idea of taking it out annually or whatever to just spread out the tax payments?

 

[golfgal]

I would advise you not to do anything until you meet with your own financial planner. It is possible that taking this money could mess up your tax situation, etc. The stretch provision is great but if you don't need the money and it causes you your tax liability to increase, you might be better off putting that in a trust or pushing it off for the grandkids-who have a longer life expectancy and can stretch the taxes out longer too.

 

[freckles and boo]

Thanks all- so is the idea of taking it out annually or whatever to just spread out the tax payments?

And to keep you out of a higher tax bracket if the amount is significant.

 

[golfgal]

Thanks all- so is the idea of taking it out annually or whatever to just spread out the tax payments?

There isn't a right or wrong answer to this question. Everyone's situation is different so talk with your own planner before you do anything.

 

[manning]

I would talk to a financial planner and CPA.

The tax laws are due to change next year and you don't know what congress is going to do on top of that.

 

[shortbun]

Do you know if the IRA was pre taxed? My mother's was and my Dad's was taxable at withdrawl. You can move the money to some other investment's firm and have them invest it as your husband wants as long as it stays an IRA and the requirements are met.
For instance, my mother's was in municipal bonds and we've moved it into some bonds(shorter term) and some other stuff with another firm because we want it to grow faster. It's all a crap shoot but municipal bonds are a very conservative investment and we're not quite ready for that yet-a few more years, lol! I'm pretty sure that withdrawls begin at 59.5yo with a minimum every year.

 

[golfgal]

Do you know if the IRA was pre taxed? My mother's was and my Dad's was taxable at withdrawl. You can move the money to some other investment's firm and have them invest it as your husband wants as long as it stays an IRA and the requirements are met.
For instance, my mother's was in municipal bonds and we've moved it into some bonds(shorter term) and some other stuff with another firm because we want it to grow faster. It's all a crap shoot but municipal bonds are a very conservative investment and we're not quite ready for that yet-a few more years, lol! I'm pretty sure that withdrawls begin at 59.5yo with a minimum every year.

Withdrawals CAN begin at 59.5 but you don't have to take anything out until 70.5 with a traditional IRA.