When You Inherit an IRA
If you are the beneficiary of an IRA whose owner has recently passed away, it is important that you not do anything without getting advice.
One of the biggest estate administration mistakes that people make after someone dies concerns something that is not technically part of the estate at all. It has to do with inherited IRAs.
Because these accounts are given to beneficiaries directly and they do not go through probate, they are not part of the estate.
The importance of IRAs to overall inheritances can be enormous. It is vital, therefore, that their administration is carefully considered.
If you are the person named as the IRA beneficiary, you have some decisions to make, as the Wills, Trusts & Estates Prof Blog discusses in "Practical Issues When an IRA Owner Dies."
The biggest thing to understand is that there are tax consequences for any decisions made about what to do with the IRA. Those consequences are not the same for everyone.
They depend on the relationship between the beneficiary and the deceased. These tax consequences are big enough that it is important to seek professional tax advice and to do so quickly.
There are penalties if decisions are not made within certain time limits.
If you are not certain who to talk to about what to do with an inherited IRA, then talk to the attorney who is assisting with the administration of the estate. This attorney can help direct you to a professional who can assist.
Reference: Wills, Trusts & Estates Prof Blog (Oct. 4, 2017) "Practical Issues When an IRA Owner Dies."