Independent Retirement Account – Defined, What are the options
Inherited IRA for Spouse, Non-Spouse,
Qualifed and Non-Qualified Beneficiary
What is an Independent Retirement Account? What is the difference between inheriting an IRA from a spouse and a non-spouse? What if there is more than on qualified beneficiary in the distribution of an IRA? What is a non-qualified beneficiary?
Inherit Independent Retirement Account from Spouse
If you inherit an IRA from a spouse, you have the option of taking the IRA as your own and also making further contributions to the account. If you choose to take the IRA as your own, you may choose beneficiaries and extend the tax-deferred benefits of the account. Another option available from inheriting an IRA from a spouse is the opportunity to begin receiving distributions from the account. Distributions must begin on the later date of when the original owner would have turned age 70 &fract12; or by December 31st of the year following the date when the owner died.
If you feel financially secure, you may choose to disclaim the inherited assets and pass on the IRA to the next designated beneficiary. Disclaiming an IRA or any assets in general is irrevocable. Prior to making this decision you should consult with a financial advisor such as Estate Street Partners who will be able to describe the tax advantages and disadvantages of this choice.
Inherit Independent Retirement Account from Non-Spouse
If you inherit an IRA from a non-spouse, such as a parent, relative, or other individual, your options are much more limited. A non-spouse beneficiary of an IRA can transfer the assets into an Inherited IRA Beneficiary Distribution Account or disclaim all or part of the inherited IRA.
If you transfer the inherited IRA into a Distribution Account, you can begin receiving distributions according to the one year or five year rule. If you choose to receive distributions under the one year rule, you must begin receiving distribution payments by December 31rst in the year following the year when the IRA owner died. Distribution amounts are determined by the age of the beneficiary.
Under the five year rule the beneficiary must receive the full interest of the IRA by the end of the fifth year following the year when the IRA owner died. If you choose to disclaim all or part of the inherited IRA you have only nine months following the death of the IRA owner to make this decision. It is an irrevocable decision and the disclaimed assets will pass to the next eligible beneficiary. Unlike a spouse – spouse transfer of an IRA, if you are a non-spouse beneficiary of an IRA you cannot make additional contributions to the account.
If More Than One Qualified Beneficiary to the IRA is Designated
Non-Qualified Beneficiary Name in the Distribution