Can you roll over an inherited IRA from a parent?
Inheriting an Individual Retirement Account (IRA) from a parent can be a significant financial windfall. However, many individuals are unsure about the options available to them regarding the inherited IRA. One common question is whether it’s possible to roll over an inherited IRA from a parent. The answer is yes, you can roll over an inherited IRA, but there are certain rules and regulations to consider.
Understanding the Inherited IRA
An inherited IRA is an IRA that you receive after the death of the original account holder. 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 type of IRA your parent had.
Rolling Over an Inherited IRA
If you’re considering rolling over an inherited IRA, it’s essential to understand the process and the rules involved. Here’s what you need to know:
1.
Direct Rollover
You can roll over an inherited IRA directly to another IRA without taking any distributions. This is known as a direct rollover. It’s important to note that you cannot roll over an inherited IRA to a traditional IRA if it’s a Roth inherited IRA.
2.
Transfer Rollover
If you want to roll over an inherited IRA to a different type of IRA, you must first take a distribution and then roll over the funds to the new IRA within 60 days. This is known as a transfer rollover. However, be aware that taking a distribution may result in taxes and penalties if you’re under the age of 59½.
3.
Required Minimum Distributions (RMDs)
If you inherit an IRA, you’re subject to RMDs, which are the minimum amounts you must withdraw from the inherited IRA each year. The RMD rules for inherited IRAs are different from those for traditional IRAs. For example, if you inherit a traditional IRA, you must take RMDs based on your life expectancy, whereas if you inherit a Roth IRA, you may not be required to take RMDs until you reach age 72.
4.
Penalties and Taxes
Rolling over an inherited IRA may result in taxes and penalties, depending on your age and the type of IRA. For example, if you’re under the age of 59½ and take a distribution from an inherited IRA, you may be subject to a 10% early withdrawal penalty, in addition to taxes on the distributed amount.
Seek Professional Advice
Given the complexities of rolling over an inherited IRA, it’s crucial to consult with a financial advisor or tax professional. They can help you understand the best course of action based on your individual circumstances and ensure that you comply with all applicable rules and regulations.
In conclusion, you can roll over an inherited IRA from a parent, but it’s essential to understand the process and the potential tax and penalty implications. By seeking professional advice, you can make an informed decision that aligns with your financial goals and ensures compliance with the law.
