How to Retitle an Inherited IRA
By Beverly DeVeny, IRA Technical Expert
Follow Me on Twitter: @BevIRAEdSlott
You have just inherited an IRA or employer plan from someone other than your spouse. What now?
The first thing we tell beneficiaries is, “Touch nothing.” At least not until you talk to someone who knows the rules for inherited accounts.
The number one rule for an inherited IRA is never, never, NEVER put the inherited funds into an IRA in your own name. Don’t request a check payable to you either. Both of those actions create a taxable distribution to you, the beneficiary, and you no longer have a tax deferred account.
Of course, maybe you have big plans and you are going to spend all of the money right away so the taxes aren’t a big issue for you. Consider, though, what you are giving up. Let’s say you inherit a $100,000 IRA at age 30. If it earns 6% a year and you take only required distributions each year, the IRA will eventually pay you over $650,000 over the next 54 years. In the first 10 years you will only get a check for $2,000 - $3,000 a year, but you can then write a check in that amount to fund your own IRA or Roth IRA, if you qualify.
The trick is in the titling of the inherited IRA account. You must leave the name of the original account owner in the account title.
For example, John Smith, deceased, IRA for the benefit of (fbo) James Smith.
This does not create a taxable distribution and you can then “stretch” the distributions over your life expectancy.
So, do yourself a favor and touch nothing. Then talk to someone who understands these rules and can show you the potential of the inherited retirement account. Then make an informed decision. If you choose to stretch your inherited account, you can sit back and collect easy money each year. Oh, and be sure to name your own beneficiary on the inherited account. They can continue to collect your payments if anything happens to you before the inherited account is emptied.
Content Citation Guidelines
Below is the required verbiage that must be added to any re-branded piece from Ed Slott and Company, LLC or IRA Help, LLC. The verbiage must be used any time you take text from a piece and put it onto your own letterhead, within your newsletter, on your website, etc. Verbiage varies based on where you’re taking the content from.
Please be advised that prior to distributing re-branded content, you must send a proof to firstname.lastname@example.org for approval.
For white papers/other outflow pieces:
Copyright © [year of publication], [Ed Slott and Company, LLC or IRA Help, LLC - depending on what it says on the original piece] Reprinted with permission [Ed Slott and Company, LLC or IRA Help, LLC - depending on what it says on the original piece] takes no responsibility for the current accuracy of this information.
Copyright © [year of publication], Ed Slott and Company, LLC Reprinted with permission Ed Slott and Company, LLC takes no responsibility for the current accuracy of this information.
For Slott Report articles:
Copyright © [year of article], Ed Slott and Company, LLC Reprinted from The Slott Report, [insert date of article], with permission. [Insert article URL] Ed Slott and Company, LLC takes no responsibility for the current accuracy of this article.
Please contact Matt Smith at email@example.com or (516) 536-8282 with any questions.