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Dealing with IRA funds after someone passes away

On behalf of Kadish & Associates Law Group posted in estate administration & probate on Friday, February 10, 2017.

IRAs are often touted as a good solution for those who want to save for retirement, and there’s nothing untrue about that claim in most cases. As with any financial plan, you probably want to make sure you spread your eggs into several baskets, but an IRA is a great way to reduce tax burdens and ensure you have funds during retirement. But what happens if someone passes away with funds still in their IRA?

The answer depends on a variety of factors, including who the heirs are and how old the person is when they pass away. Regardless of any other factors, if the person is leaving the IRA to their spouse, the government has made provisions for an easy transfer. The surviving spouse can choose to roll the IRA into their own IRA without any penalties or issues. The money is treated as if it’s always been in the new IRA account.

Things get a bit more complicated if the heir isn’t a spouse or the heir wants to take disbursements from the IRA without rolling it into another retirement account. Any disbursements are likely to be taxable, and a heir has to take all the funds out within five years of the person passing away. You can sometimes save a bit on taxes through deferral by waiting the full five years, but that requires that the person didn’t already start taking distributions from his or her account.

If you have an IRA account and want to include it in your estate — or you are an heir who has inherited an IRA account — consider working with an estate lawyer. He or she can help you understand how best to manage the assets to reduce tax burdens and avoid legal troubles.

Source: Fox Business, “Inherited IRA Rules: What Heirs Need to Know,” Dan Caplinger, Dec. 23, 2016

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