When you inherit an IRA, you can elect to take small distributions over your lifetime to spread out the taxable income rather than taking a lump sum all at once. To prevent any unnecessary money from going to Uncle Sam, you need to know how you can move it without it all being taxed. Unless you are the decedent's spouse, once the money comes out of the inherited IRA, it's permanently withdrawn even if you intended to roll it over. Fortunately, there's another way to move the money: by transfer. With a transfer, the money is moved by the IRA trustee directly into another beneficiary IRA. This lets you take control and invest it the way you want to.
Open a beneficiary IRA at your chosen financial institution. The account must be clearly titled as a beneficiary IRA in the name of the deceased for your benefit. For example, the account could be titled "Markus Wolder, deceased, for the benefit of Mary Wolder."
Request a transfer form from the bank at which the deceased had the IRA. Make sure you get a form for a transfer, not a rollover, because once you take the money out, you can't put it back in. The forms might vary slightly from bank to bank.
Complete the required form from the financial institution to request a transfer and submit it to the bank where the deceased had the IRA. This form typically requires the account information of the inherited IRA as well as the account information for the beneficiary IRA into which you want to transfer the funds. After you submit the form, the bank will automatically move the money from the inherited IRA into the beneficiary IRA without any further action on your part.
- You don't need to report the transfer on your income tax return because only rollovers and distributions require reporting.
- You cannot transfer the funds from an inherited IRA into your own IRA. Instead, the funds must be kept separate because you are responsible for taking required distributions from the account.
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