Making the most of an IRA inheritance

by | Jun 25, 2018 | Inheritances |

An increasingly tough economy has left many people in difficult financial situations. Recent studies show one in three people in the United States are counting on an inheritance from family members to reach financial security. In Texas and elsewhere, one of the most common ways for younger generations to receive an inheritance is through unspent IRA balances.

Most retirees wait to take distributions from IRAs because of tax consequences. Those lucky enough to inherit an unspent IRA should know the special rules that can add a lifetime of benefits that some people miss out on. The most common choice for a beneficiary is the spouse of the deceased, and the rules are simple for that person to inherit an existing IRA account. The surviving spouse can roll the existing IRA over into his or her name or a created account, but penalty-free withdrawals and minimum distributions depend on the spouse’s age.

Only a surviving spouse can roll over an IRA, but there are other alternatives available to beneficiaries. A lump sum payout is one option, but it is subject to immediate taxation. Furthermore, the funds in the account will lose any tax benefits, but the beneficiary will incur no early withdrawal penalties on accounts passed on after the account holder’s death. Another choice for non-spouses may be to establish a beneficiary IRA account. These accounts allow recipients to spread out distributions over their lifetimes.

An inheritance can be a rewarding opportunity for one’s financial health. Residents of Texas who have financial questions regarding an inheritance may benefit from speaking with an attorney. A lawyer who is knowledgeable about inheritance distributions and income tax consequences can guide his or her client to a healthy financial future.


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