What are the options for taking required distributions from an inherited IRA?

Asked by Erin

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Answered by Robert Henderson, AAMS® CDFA® in Mystic, CT
There are some very specific rules (so please consult an advisor) regarding Inherited IRA's, but generally speaking you have three options:

1. Take distributions over your expected lifetime (you, meaning the beneficiary).

2. Take withdrawals over 5 years.

3. Lump Sum Distribution.

However, the rules may be different depending on the age of the account holder, the age of the beneficiary, the age(s) of the OTHER beneficiaries, and whether it was a spousal IRA or another individual that you inherited it from.

The rules are VERY specific, and MUST be followed correctly, including exactly how the inherited IRA needs to be re-titled. Otherwise, the entire IRA could become taxable at once (and possibly subject to 10% penalty depending on ages).

So it is always best to consult with a financial advisor or CPA that is very familiar with the rules of inherited IRA's. | 12.18.15 @ 18:02
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$commenter.renderDisplayableName() — {comment} | 12.09.16 @ 11:56
Answered by Karl Leonard Hicks, CFP® in Riverside, CA
There are not many options when it comes to Required Minimum Distributions (RMD), or your options are infinite. It depends on what you mean by “options”. The bottom line is the IRS wants their taxes. The important thing is that the funds that make up the RMD are removed from the IRA and listed as taxable income on the individual’s tax return. What happens to the funds from that point is up to the individual. The funds may be invested in another portfolio (non-qualified) or spent or put in a bank account.

Now if by options you are referring to the amount of the distribution, there is little choice here. The amount is based on a calculation determined by the IRS. It uses the age of the original IRA owner and the beneficiary owner to determine the minimum distribution. Check with your accountant or financial advisor or the custodian of the inherited IRA to get help in calculating the RMD amount.

I hope this helps,

Karl Leonard Hicks, CFP®, MBA | 12.21.15 @ 22:45
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$commenter.renderDisplayableName() — {comment} | 12.09.16 @ 11:56
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