Have you ever heard the phrase “stretching your IRA”? Here’s the not-so-little trick it refers to: If you inherit an IRA, it’s not only possible for you to “stretch your payments out” over the course of your lifetime, but with adequate assets and planning, your beneficiary can actually do the same after your death.
The whole process starts with your decedent’s beneficiary form. If anyone other than the decedent’s spouse inherits the account, they are legally required to begin taking distributions by December 31 of the year following the death. The beneficiary retains the right to withdraw funds over the course of their lifetime.
If you are the holder of a current IRA, your account has been able to grow tax-free since it was established. This can continue unabated until your spouse or other beneficiary dies or fully depletes the account. Normally, when you are closing an IRA account, you can redeposit funds into another IRA within 60 days at no penalty. The better process is to have the inherited IRA transferred directly to your new inherited IRA. This is referred to as a Trustee to Trustee transfer. When you are the beneficiary to such an account, the process will not be as simple if you are choosing to stretch payments over your lifetime.
Properly titling of the inherited IRA account is paramount. This is one of the most detailed areas of tax law. It is definitely not a do-it-yourself job. Lawyers who are specialists in other fields would be prudent in avoiding this process. You only have one chance to get it right and there are no do-overs.
If you find yourself wanting your stretch your IRA or needling to retitle an inherited IRA, please call us at (309) 944-2188 to set up a private consultation.
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