Inheriting money or assets from another person is often an event that comes with mixed emotions. You may feel saddened at the loss of that person but grateful that he or she cared so much for you. Though an emotional response is natural, there are practical considerations as well.
One type of account you might inherit here in Maryland is an IRA, which is a type of retirement account. Many people bequeath these accounts as part of estate planning. Last year, the passage of the Secure Act changed how to handle distributions from inherited IRAs. It now says that recipients, unless an exemption applies, have 10 years after the owner’s passing to deplete the account. Fortunately, experts say that there are steps you can take to maximize your financial returns from an inherited IRA.
What to do right away with your new IRA
You’ll want to take several steps right after inheriting your IRA. If you don’t already have your own IRA account, you’ll need to open one so you can easily transfer the funds into an account that you will own. Experts advise opening an account that is the same type as what you inherited, either a Traditional IRA or a Roth IRA. This may also be a good time to talk with a financial advisor or other money expert to determine your available options and how each one will impact you.
You might qualify for an exemption to the Secure Act’s rule that would allow you to change how you receive distributions from the fund. If your new IRA came from your spouse, distributions follow the same guidelines as if you were the original owner. Minors and those with disabilities or chronic illnesses also get more time for withdrawals. If you’re less than 10 years younger than the original owner, you can take withdrawals over the course of your life.
I already have a retirement fund. Now what?
If none of the exemptions apply to you and you already have your own retirement savings, you have choices to make. You could take those withdrawals and use them to cover your necessary expenses while leaving your own retirement savings intact. These IRA withdrawals may also come in handy if you carry some debt or don’t currently have an emergency savings fund. Essentially, they can help you reach other financial goals you may have.
Depending on what you choose to do with your IRA, this may be a good time to consider how this account could affect your choices for estate planning. Inheriting an account like this likely means that someone else considered you when creating his or her estate plan. If you don’t yet have an estate plan for yourself, an attorney can help you begin the process.