Inherited IRA Distribution Rules: Webinar Recap

This webinar was about understanding the fundamentals of inherited IRAs, also known as beneficiary IRAs. The session covered the basic rules, legislative changes affecting these accounts, and considerations for beneficiaries. Additionally, it provided an overview of inherited IRAs and how they work, and the option beneficiaries have to self-direct inherited accounts. It also explained inherited IRA distribution rules for different types of beneficiaries.

You can watch the recorded webinar below or read the brief summary below.

Webinar host: Reneika Lightbourne, business development specialist at Advanta IRA

Summary of Inherited IRA Distribution Rules Covered in the Webinar

      • The inherited IRA distribution rules for beneficiaries differ significantly.
          • Inherited IRA distribution rules for spouses enable the surviving spouse to stretch the inherited RMDs over the course of their lifetimes or roll the inherited funds into their own retirement accounts.
          • Non-spouse beneficiaries must deplete funds in the account within 10 years of the date they inherit it.
          • Roth inherited IRA funds must be depleted within 5 years of inheritance.
      • No additional contributions can be made to an inherited IRA.
      • You can self-direct an inherited IRA, allowing beneficiaries to invest in a range of alternative investments.
          • Alternative investments include real estate, private equity, crypto, private lending, precious metals, and more.
      • The tax treatment of inherited IRAs remains the same as the original account.
          • If you inherit a Roth IRA, distributions are tax free.
          • Traditional IRA distributions are taxed.
          • Qualified accounts like 401(k)s are taxed according to whether contributions were made with pre-tax or post-tax (Roth) dollars. This can be complex to determine, so seek the advice of appropriate counsel before taking a distribution.
      • When applicable, required minimum distributions are generally taxed as ordinary income in the year they’re taken. This does not apply to Roth IRAs. Inherited Roth IRAs have their own set of rules and considerations.
      • The rules for eligible beneficiaries are the same regardless of when the IRA was inherited, except for minor children and disabled beneficiaries.

Key Points on Inherited IRA Distribution Rules

Inherited IRAs provide unique opportunities and challenges for beneficiaries.

Reneika emphasized the importance of understanding inherited IRA distribution rules and the impact of recent legislative changes affecting these accounts. For A mother and daughter smiling at each other discussing rules for inherited IRAs.beneficiaries, it’s crucial to understand these rules and navigate strategic considerations. “The rules differ for spouse and non-spouse beneficiaries of inherited IRAs. The Setting Every Community Up for Retirement Enhancement (SECURE) Act and the SECURE Act 2.0 is recent, key legislation that impacts retirement accounts, including inherited IRAs,” she explained.

These changes affect taxes and overall planning strategies for all retirement plans, including beneficiary IRAs. She stressed the importance of consulting with a professional advisor before making any decisions.

Reporting procedures for inherited IRAs.

Additionally, Reneika stressed the importance of proper reporting procedures for inherited IRAs. The IRS requires custodians to report any distributions, which are generally taxed as ordinary income in the year taken. She explained custodians are required to report to the IRS any distribution that’s taken from an IRA. Distributions to the beneficiary of an IRA are reported under the name of the beneficiary and not the deceased on the IRS form 1099R.

You Can Self-Direct an Inherited IRA to Invest in Alternative Investments.

The process of self-directing an inherited IRA involves understanding inherited IRA distribution rules, rules for self-directed IRAs, setting up the account, and making investment decisions.

“A self-directed IRA just means that you as the account owner have complete control over the retirement funds and investment decisions,” she said. Furthermore, she pointed out that it allows account holders to diversify outside of traditional stocks and bonds. Self-directed account owners can use alternative investments. Assets like real estate, private equity, and precious metals also build tax-sheltered wealth in the account.

For those considering self-directing an inherited IRA, Reneika provided a step-by-step guide, which is provided in the webinar recording above.

 

If you have questions about inherited IRA distribution rules or want to learn more about self-directed IRAs, contact Advanta IRA today.