How Long to Withdraw from Inherited IRA: A Comprehensive Guide
When you inherit an Individual Retirement Account (IRA), it’s important to understand the rules and regulations surrounding the distribution of funds. One of the most common questions individuals have is “how long to withdraw from inherited IRA?” This article will provide a comprehensive guide to help you navigate this process.
Understanding the Inherited IRA
An inherited IRA is an IRA that is passed on to someone after the original account holder’s death. There are two types of inherited IRAs: traditional and Roth. The rules for distributing funds from these accounts can vary depending on the type of IRA and the relationship between the deceased account holder and the inheritor.
Required Minimum Distributions (RMDs)
One of the key considerations when determining how long to withdraw from an inherited IRA is the requirement to take minimum distributions (RMDs). For inherited IRAs, the IRS mandates that RMDs must begin by the end of the year following the year of the original account holder’s death.
Joint Tenants with Right of Survivorship (JTWROS)
If you inherited an IRA from a joint tenant with right of survivorship (JTWROS), you may be able to treat the inherited IRA as your own. In this case, you would follow the same withdrawal rules as if you had opened the IRA yourself. This means you would need to take RMDs based on your life expectancy.
Non-JTWROS Beneficiaries
For non-JTWROS beneficiaries, the rules are different. The IRS provides a five-year rule for distributing inherited IRAs. Under this rule, you must withdraw the entire balance of the inherited IRA by the end of the fifth year following the year of the original account holder’s death. However, you can choose to take RMDs each year based on your life expectancy, which may result in a lower total withdrawal over the five-year period.
Spousal Beneficiaries
If you are the spouse of the deceased IRA owner, you have some additional options. You can either treat the inherited IRA as your own or take RMDs based on your life expectancy. If you choose to treat the inherited IRA as your own, you can take RMDs based on your age or life expectancy.
Considerations for Beneficiaries Under Age 59½
If you are a beneficiary under the age of 59½, it’s important to note that taking an early withdrawal from an inherited IRA may be subject to a 10% penalty tax, in addition to regular income tax. This penalty tax can be avoided if the withdrawal is due to certain exceptions, such as the death of the original account holder or a disability.
Seek Professional Advice
Navigating the rules and regulations surrounding inherited IRAs can be complex. It’s important to consult with a financial advisor or tax professional to ensure you are making the best decisions for your situation. They can help you understand the tax implications, the best withdrawal strategy, and any potential penalties or exceptions.
In conclusion, the answer to “how long to withdraw from inherited IRA” depends on various factors, including the type of IRA, the relationship between the deceased account holder and the inheritor, and the specific rules for each scenario. By understanding these factors and seeking professional advice, you can make informed decisions about distributing funds from an inherited IRA.
