TRANSCRIPT:

Congress and the IRS have taken what should be a fairly simple process, inheriting an IRA, and made it anything but. There are rules within rules, traps for the unwary, and major tax consequences if you make the wrong move. Whether you’re just the spouse, child, or even just the name beneficiary of someone’s IRA, the rules have changed dramatically, especially after the Secure Act and new regulations finalized in 2024.

Hi, I’m Hunter Brockway, founder of Boca Retirement Strategies, where we help people retire successfully, stress-free with more money and fewer taxes. Today, I’ll walk you through the key inherited IRA rules you need to know to avoid penalties, minimize taxes, and make the most out of what’s left to you.

Let’s say mom left her IRA to you and your siblings. You’re not stuck managing it together forever. You can split it into separate inherited IAS tax-free by December 31st of the year after she passed. But one of the easiest places to make this mistake is in how the account is titled. If you just switch it to your name, the IRS sees it as a distribution. That’s a huge taxable mistake. You can transfer the inherited IRA to another custodian, but don’t touch the money. It has to go directly trustee to trustee. And yes, you can adjust the investment, stocks, bonds, and funds. As long as it’s allowed in a regular IRA, it’s allowed in the inherited one.

Some unique inherited IRA specific tax rules and expectations are as follows. No 10% early withdrawal penalty for inherited IAS, even if you’re under 59 and a half. Roth IAS, no need to worry about the 5-year rule either. But remember, traditional IRA distributions are taxable as income. Lastly, name your own successor beneficiary. If you pass away before the inherited IRA is fully distributed, you don’t want it ending up in probate or your state where taxes could be even worse.

Inherited IAS can be a gift or a tax mess. The difference is how you handle them. It’s important to note we’ve only briefly covered one example today and the IRS notes different types of beneficiaries for different circumstances, and the rules go on and on. Make sure that you read all of the rules for yourself and how they apply to your situation. If you’ve inherited one or expect to, don’t wing it. Talk to someone who knows rules. If you have any questions around inherited IAS or any other financial questions, you can send them in to contact@bocaretirement.com.

Before you go, if you’re looking for a free tax-smart retirement plan tailored to your unique situation, you can head over to our website at bocaretirement.com. Enter your information in the pop-up and we’ll build you a plan tailored to your unique specific situations at no cost or obligation. If, for some reason, that pop-up doesn’t show for you, if you click out of it, no worries. Just send us an email at contactbarretirement.com. Again, that’s no cost, no obligation. We’ll put together a simplified plan for you to help you take the next steps towards a successful, stress-free retirement with more money and fewer taxes. See you over there. Bye.