Individual Retirement Accounts - Beneficiaries Of IRAs And Qualified Plans 2021 | Best Guide - CPA Clinics
As a designated beneficiary, you have choices when inheriting a traditional IRA.
– To be treated as your own IRA you must be the sole beneficiary of the IRA and have unlimited right to withdraw amounts from it.
– Qualified employer plan,
– Qualified annuity plan (section 403(a) plan),
– Tax-sheltered annuity plan (section 403(b) plan), or
– Deferred compensation plan of a state or local government (section 457 plan).
If you are the owner of the inherited IRA and not the beneficiary, you will determine the RMD (if any) as if you were the owner beginning with the year you elect or are deemed to be the owner.
Note: If you become the owner in the year your deceased spouse died, do not determine the RMD for that year using your life, rather, you must take the deceased spouse’s RMD for that year (to the extent it was not already distributed to your spouse before his or her death.
If you inherit a traditional IRA from anyone other that your deceased spouse, you cannot treat the inherited IRA as your own. This means you cannot make any contributions to the IRA. It also means you cannot roll over any amounts into or out of the inherited IRA. You can make a trustee-to-trustee transfer as long as the IRA into which the amounts are being moved is set up and maintained in the name of the deceased IRA owner for the benefit of you as beneficiary.
The inherited IRA must generally be fully distributed by the end of the 10th calendar year following the year of the IRA owner’s death, except for the following eligible designated beneficiaries of IRAs.
The 10% penalty for withdrawal before age 59½ does not apply to a distribution to you on or after the death of the participant. However, if a spouse chooses to roll the decedent’s IRA into his or her own separate IRA, any subsequent distribution will be subject to the 10% early withdrawal penalty assuming no other exception to the penalty applies.
Any nondeductible contributions that gave the IRA a basis stay with the IRA after it is inherited by you. The basis cannot be combined with your basis in your own IRAs unless you are the decedent’s spouse and choose to treat the IRA as your own.
When a Roth IRA owner dies, the minimum distribution rules that apply to traditional IRAs apply to Roth IRAs as though the Roth IRA owner died before his or her required beginning date.
Generally, the entire interest in the Roth IRA must be distributed by the end of the 10th calendar year after the owner’s death. Exceptions apply for eligible designated beneficiaries of IRAs.
If you are the sole beneficiary and the decedent’s spouse, you can either delay distributions until the year your spouse would have reached age 72 or treat the Roth IRA as your own.
You can combine an inherited Roth IRA with another Roth IRA you maintain only if you either:
Distributions from inherited Roth IRAs are not usually taxed. However, if a distribution to you is not a qualified distribution, it is generally includible in your gross income in the same manner as it would have been included in the owner’s income had it been distributed to the IRA owner when he or she was alive. If the owner of a Roth IRA dies before the end of one of the following, the ordering rules for Roth IRA distributions determines which part may be taxable.
