Can I put inherited money into an IRA?
Inheriting money can be a significant financial windfall, but it also brings with it the responsibility of managing the newfound wealth. One common question that arises is whether inherited money can be contributed to an Individual Retirement Account (IRA). The answer is yes, you can put inherited money into an IRA, but there are certain rules and regulations to consider.
Understanding Inherited IRAs
When you inherit an IRA, it is typically classified as an inherited IRA. This means that the inherited funds are subject to different rules compared to a traditional IRA you might have established on your own. It’s important to understand these rules before deciding to contribute inherited money to an IRA.
Types of Inherited IRAs
There are two types of inherited IRAs: a traditional inherited IRA and a Roth inherited IRA. The type of inherited IRA you have depends on the original IRA owner’s choice. If the original IRA was a traditional IRA, the inherited IRA will also be a traditional IRA. Similarly, if the original IRA was a Roth IRA, the inherited IRA will be a Roth inherited IRA.
Contributing Inherited Money to an IRA
You can contribute inherited money to an IRA, but there are limitations. For a traditional inherited IRA, you can only contribute the amount that the original IRA owner would have been able to contribute if they were still alive. This is typically the lesser of the inherited amount or the annual contribution limit set by the IRS for the year in which the contribution is made.
Roth Inherited IRAs
In the case of a Roth inherited IRA, you can contribute the full amount of the inherited money, subject to the annual contribution limits. However, it’s important to note that the contributions to a Roth IRA are made with after-tax dollars, and the earnings on the contributions grow tax-free.
Time Limitations
There is a time limit for contributing inherited money to an IRA. Generally, you must withdraw the entire inherited IRA balance by the end of the fifth year following the year in which the original IRA owner passed away. However, certain exceptions may apply, such as if you are the surviving spouse or if you are disabled.
Consulting a Financial Advisor
Navigating the complexities of inherited IRAs and contributing inherited money to an IRA can be challenging. It is advisable to consult with a financial advisor who can provide personalized guidance based on your specific situation. They can help you understand the tax implications, contribution limits, and the best strategies for managing your inherited money.
In conclusion, yes, you can put inherited money into an IRA. However, it is crucial to understand the rules and regulations surrounding inherited IRAs and consult with a financial advisor to make informed decisions regarding your inherited funds.
