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Inherited IRAs Demystified

May 16th, 2011
Inherited IRAs Demystified

Since IRAs have become a popular retirement tool, it was only a matter of time before inherited IRAs become a common place. When the owner of an IRA passes away, the named beneficiary inherits the account. Inherited IRAs have restrictions and rules separate from other IRAs. For instance, only spouses can roll IRAs into an existing IRA account. Others will need to keep the account separate, and name it accordingly. The Boston Globe recently covered this nicely in “What to do if you inherit an IRA.”

Also, it's important to know that inherited IRAs do not incur the same penalties from early withdrawal (before 59 ½) as other IRAs do. Does that mean you should withdraw the entire amount at once? Not necessarily. That’s something you’ll need to decide with the help of your financial advisor.

Some recent news about inherited IRAs: A district court in Eastern Texas ruled that inherited IRAs cannot be seized by bankruptcy creditors. The ruling (Chilton v. Moser, 2011 WL 938310, issued 3-16-11) involved a debtor who inherited her mom's IRA and then filed for bankruptcy. This is important news for those forced into bankruptcy because the ruling indicates that any retirement fund exempt from taxation (including inherited IRAs) are safe from the clutches of the bankruptcy court.

If you've recently inherited an IRA, contact a financial advisor to discuss the next steps you need to take to safeguard the investment. If you don’t have a financial advisor already, we'd be happy to help.



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