Inheriting an IRA is more complicated than getting a pile of cash. If you inherit an account from your spouse, you can take the money, roll the funds into your own account or treat your spouse's account as your own. If you inherit from anyone else, you can either withdraw the money or transfer it to a new account set up for you as beneficiary. If you follow the federal guidelines, you can reduce the impact the inheritance has on your taxable income.
Choose an investment broker, mutual fund company or bank where you'd like to open your new IRA.
Open the IRA. When you fill out the paperwork to set up the account, register it in the name of both yourself and the deceased. For example, "Fred Flintstone, deceased 1/14/2011, for the benefit of Wilma Flintstone, beneficiary."
Call the administrator for the deceased's IRA. Ask her to transfer the money over to your new beneficiary account, and provide the account information. When you inherit from your spouse, you can handle the transfer yourself, but if you inherit from anyone else, the administrator must do the job or the IRS treats it as a straight withdrawal and taxes it accordingly.
- When choosing a broker look for one with low annual fees to reduce the drain on your wallet.
- If you transfer the contents of the inherited IRA into one with the wrong name, this makes the transferred money taxable. If you rename the IRA immediately, you're in good shape, as long as you haven't mixed your inheritance with any of your own money.
- If the deceased named an alternative beneficiary -- your brother, for instance -- and you'd rather see him inherit the account, you can decline your inheritance.
- If you commingle funds -- putting your inheritance in an IRA along with some of your own money, or combining two inherited IRAs into one account -- you're in trouble. The IRS will treat all the money you transferred as taxable income.
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- Can an Inherited 401(k) Be Rolled Over to an IRA?