Phil Cannella: Taking Death Distributions from Inherited IRAs

Phil Cannella:  Master IRA Advisor

Taking Death Distributions from Inherited IRAs

In his 38 years as a Master IRA Advisor, Phil Cannella has seen it all.  People use many different methods to plan for retirement, but today one of the more common ways to save is by contributing money to an IRA.  If you’re in or near retirement, your spouse probably has some money in an IRA.  Have you ever thought about what you would do if your spouse passed away and left you an IRA?  Many people haven’t thought much about it, and don’t know what options they have for taking death distributions from an inherited IRA.

Phil Cannella believes that education is the key to making sound financial decisions, and would like to educate you on the many ways you can take distributions from an inherited IRA.  Proper planning can help ensure you get the most benefit from the money your spouse left you, while keeping your tax burden at a minimum.  In that spirit, we will briefly be discussing some of the options you have when you inherit an IRA from your spouse.

The first concept you need to understand is that you may be required to take a Required Minimum Distribution (RMD) from an inherited IRA in order to avoid serious tax penalties.  An RMD is a certain percentage of your traditional IRA that you will be required to withdraw each year upon reaching age 70½.  If you don’t take an RMD, or if you don’t take out enough, the IRS will assess a 50% penalty to the remainder of the amount you were supposed to pay.  So if you RMD was supposed to be $1000 and you only took out $500, you would be stuck paying a $250 penalty in addition to any taxes you would be liable to pay on the money you withdrew.  That’s why it’s so important to make sure you’re taking your RMD each year, and that you’re taking the correct amount.

When you inherit an IRA, you may be required to ta
ke an RMD in certain situations as well.  For example, if the IRA owner dies on or after their Required Beginning Date (The date when they would be required to start taking an RMD), you will have to take an RMD from their account as if they had lived the entire year.

Of course there are many different situations an IRA beneficiary could find themselves in, and we will be addressing some of those in the coming weeks.  Be sure to check back on our blog regularly for news, updates and tips from Phil Cannella that could help you in your planning for the future.