Q. I am the beneficiary of an Individual Retirement Account (IRA). Because I am not the spouse, do I have to take the money out in a lump sum or do I have other options?
A. Non-spouse beneficiaries sometimes THINK they have to take the money out of an IRA in a lump sum but that is not the case. A non-spouse beneficiary has different options than a spousal beneficiary. A non-spouse beneficiary can take a required minimum distribution (RMD) out over their life expectancy starting no later than December 31 of the year following the year of death. (The life expectancy may differ if there are more than one beneficiary so be alert to other options if this is the case.) If the beneficiary does not set up the RMD timely, then they may be locked into taking a lump sum before 5 years after death. This might have significant tax consequences. The life expectancy distribution method is at a minimum. If you find that you need more money or you can afford to have more income on your tax return to play tax brackets, you can always take out more. Because the distribution was because of death, even if you are under age 59 ½, you will not be subject to the early withdrawal penalty of 10% that would otherwise apply to your own retirement account withdrawals.
See 2-15-08 FAQ for more information on beneficiary IRA and always seek professional help.
IRS Circular 230 Disclosure: To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. federal tax advice contained in this communication, including any attachments, is not intended or written to be used, and cannot be used, for the purpose of 1. avoiding penalties under the Internal Revenue Code or 2. promoting, marketing, or recommending to another party any transaction or matter addressed herein.
Securities offered through Valley National Investments, Inc. - an independent broker/dealer and member FINRA and SIPC.
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