Can I contribute to an inherited IRA? This is a common question among individuals who have inherited an IRA from a deceased loved one. Understanding the rules and regulations surrounding inherited IRAs is crucial to ensure that you make the right decisions regarding your financial future. In this article, we will explore the ins and outs of contributing to an inherited IRA, helping you navigate the complexities of this financial instrument.
Inherited IRAs, also known as beneficiary IRAs, are designed to provide tax-advantaged growth for the beneficiaries of an IRA account holder. While you cannot contribute additional funds to an inherited IRA, there are certain circumstances where you may be able to make a contribution to the account. Let’s delve into the details to determine if you can contribute to an inherited IRA.
Firstly, it’s important to note that the primary purpose of an inherited IRA is to provide financial support for the beneficiary, not to accumulate wealth. Therefore, the IRS has strict rules regarding contributions to inherited IRAs. Generally, you can only contribute to an inherited IRA if you are the original account holder’s spouse or a surviving spouse who is the sole beneficiary of the IRA.
If you are a surviving spouse and wish to contribute to an inherited IRA, you must first convert the inherited IRA into your own IRA. This process is known as a spousal rollover. Once the inherited IRA has been converted, you can make contributions to the new IRA as if it were your own. However, it’s essential to understand that these contributions are subject to the annual IRA contribution limits set by the IRS.
For non-spouse beneficiaries, the answer to whether you can contribute to an inherited IRA is a resounding no. Non-spouse beneficiaries are not eligible to make contributions to an inherited IRA. Instead, they must follow the required minimum distribution (RMD) rules, which dictate how much money must be withdrawn from the inherited IRA each year.
The RMD rules for inherited IRAs are different depending on the type of IRA you inherited. If you inherited a traditional IRA, you must begin taking RMDs by the end of the year following the year in which the original account holder passed away. For a Roth IRA, you must begin taking RMDs by the end of the year following the year in which you reach age 72 (or the year in which the original account holder would have reached age 72, if they were still alive).
In conclusion, while you cannot contribute to an inherited IRA as a non-spouse beneficiary, you can do so if you are the surviving spouse and convert the inherited IRA into your own. It’s crucial to understand the rules and regulations surrounding inherited IRAs to ensure you make the most of your financial opportunities. Consulting with a financial advisor or tax professional can provide you with personalized guidance and help you navigate the complexities of inherited IRAs.
