Question: I just inherited an IRA from my uncle. What should I do now?
Answer: In general, according to IRS tax rules, a living person that is named as a designated beneficiary can stretch distributions over their life expectancy.
In order to do this you would establish an inherited IRA. The title on the account must include the name of the decedent. For example, John Adams, deceased, IRA for the benefit of Sue Adams. Funds will then need to be transferred to the new IRA, however it has to be a trustee-to trustee transfer, to the inherited account. The most important thing to remember is that any distribution payable to you will be taxable and will not be eligible to go into any IRA account.
Required distributions must begin in the year after the account owner’s death. Any required distributions that are missed will be subject to a 50% penalty and must be reported by the beneficiary in the year the distribution was missed.
And remember, once the account is open, you will need to name your successor beneficiaries.
Note: Spousal rules may be a little different as spouses generally get a better tax ‘deal’ for IRAs inherited from his or her husband/wife.
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Steve Shane provides strategic counseling to clients in need of estate administration, charitable giving and business continuity planning while minimizing estate, gift, and generation-skipping transfer tax exposure. He offers legal guidance to clients on asset protection and the proper disposition of assets in accordance with the client’s objectives, while employing tax planning techniques such as the use of irrevocable trusts, life insurance planning, lifetime gifts and charitable trust. He is also experienced with drafting documents for business planning, the incorporation and application for exemption for Private Foundations and the administration of decedents’ estates.
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