Can someone in plain terms tell me the best way to handle a non spouse, non family member inherited IRA and what is the best way to handle it?
Thanks
Thanks
OT: Question about a non spouse inherited IRA.
- Thread starter scarletjimmy
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Best way? You can keep it in place and calculate the Required Minimum Distribution (based on your age and the account value), and then take that distribution. If the death occurred in 2016, you have until Dec 31 2017 to take the distribtion. As an alternative, you can redeem the whole account, and pay a penalty. Consult your accountant before you do anything.
This is wrong. There is no penalty.
OPTION 1: You can stretch the IRA over your lifetime, in which case you must take RMD's every year for the rest of your life expectancy. This will continue the tax deferral. You will pay income tax as distributions come out to you.
OPTION 2: You can withdraw it immediately, or in any way you choose, but you must withdraw the entire account inside of 5 years. There is no early withdrawal penalty for simply cashing out the account. You will, however, pay income tax on the distributions.
Whether it makes more sense to stretch or simply withdraw the account depends on your financial situation. There is no right answer. Speak to your financial advisor. One thing you should not do, is withdraw the IRA before you have decided. Once you withdraw it you will forever lose the option to stretch. You can't withdraw it, and then "roll" it into another IRA you have. Everything must be done directly through the administrator.
No matter which option is chosen, you pay income tax on all the distributions. Importantly, if you opt for a lump sum withdrawal, it may move you into a higher tax bracket, so be sure you understand how much tax you will have to pay if you cash it out.
Generally speaking, it makes the most sense to leave the IRA in place, and contact the IRA administrator about stretching it over your lifetime. For these purposes, your life expectancy is determined (and redetermined) by reference to actuarial tables. The advantage of the tax deferral is very valuable, especially if it is a lot of money. That said, people often simply cash them out, either because they need the money, or because they would rather invest it themselves.
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I dialed it back, but I disagree with that too. You should call your financial advisor. The accountant is going to tell you the rules, just like I did. The accountant (unless he or she is also an FA) is not going to be able to help you analyze your investment objectives, and what makes the most sense given a particular situation.
If its traditional IRA. Roth rules on non taxable Roth IRA distributions apply to heirs.
Poor choice of wording. By "penalty" I was referring to the additional taxes you would likely incur by cashing in the entire account, as a result of the redeemption moving you into a higher tax bracket. Again, seek professional guidance on this and/or any significant financial matter.
I have a question on annuities. I know I will have to pay taxes on the gain if I surrender an annuity before age 59.5. There is also the penalty of 10% of the gain. If I use the annuity proceeds to pay for college for one of my children, I understand it that there is no 10% penalty. Have at it people and thanks.
Also no need to discuss the merits of using "retirement savings" to pay for college. I have a defined benefit plan and comforatable iras and 401k. This was pushed on a my wife by a greedy sales person.
Also no need to discuss the merits of using "retirement savings" to pay for college. I have a defined benefit plan and comforatable iras and 401k. This was pushed on a my wife by a greedy sales person.
There is a twist if you are not the only beneficiary, I.e. A sibling also inherits a portion. Check with your financial/ tax advisor.
STOP. When was the annuity issued? Who was the issuer?
Annuities can be terrible products, but insurers have fundamentally mispriced them for the last decade. Variable annuities almost knocked a few companies out during the crisis.
Every annuity is different but, in general, you will not be able to replace it with anything similar going forward. The issuer would LOVE for you to surrender it. In fact most have tried to buy them back at generous prices.
- The first thing you want to find out is the specific annuity features, if you don't already know them.
- If you are set on cashing in, find out if the issuer has offered buy backs. If the period expired, contact the company. They will trip over themselves to give you at least the terms of their most recent repurchase offer.
- Keep in mind that your annuity features may be so rich, that it makes sense to pay increased taxes and penalties elsewhere to maintain the annuity. This is especially true for pre-crisis products.
The only thing that I'll add to this is that if you do decide to stretch the distributions, it is not written in stone. What I mean is that you can always abandon the stretch and take more than the required amount, or even take the entire amount. But you cannot take less than the annual stretch payment.
If the Benefactor did NOT take a REQUIRED distribution in his/her year of death, then you must take it payable to yourself. If Benefactor DID take a Required distribution in the year of his/her death then you must begin your distributions the following year. Can spread distribution using required table each year dictating a minimum you must take. However you can exceed the minimum by any amount in any year of your distributions. Taking it all at at once can be tax-wise costly.
I agree with this. Some annuities are very good products. I would talk with an FA you trust, and ask them to evaluate whether or not the product is any good. They will tell you. Just ignore the part where they try to sell you a replacement product.
Here's the twist.
Multiple individual beneficiaries. If as of September 30 of the year following the year in which the owner dies there is more than one beneficiary, the beneficiary with the shortest life expectancy will be the designated beneficiary if both of the following apply.
All of the beneficiaries are individuals, and
- The account or benefit has not been divided into separate accounts or shares for each beneficiary.
Yeah, may want to pump the brakes there. That greedy sales person may have thought tax deferral was a good idea in your case and/or was trying to help you out when it was time for FAFSA and/or EFC.
I have inherited two of these. Each time I rolled the IRA over to Fidelity and I take the MRD every year. This was the best tax situation for me. As others have pointed out, it is best to have the financial institutions handle the roll over. If you cash it out with the intention of rolling it over yourself, I think you have thirty days to do so before the entire amount is taxed.
Fafsa EFC are non relevant for me. My kid is on a scholarship and we dont qualify, so I dont bother filing.
I can check again, but last time I checked they were not offering buybacks. You provided some food for thought and maybe a partial redemption makes sense. Mi could keep the guaranty aspect of this contract open, get the liquidity I need and go from there. Currently it is up over 50%, so there is no gty benefit risk of the current contributions. But that is something to consider going forward. Keep the contract open but draw what I need....
Who was the insurer and when was the policy written? As others say, pre crisis policies probably very feature rich.
Jackpot!
They are desperate to get out of that business. They stopped writing variable annuities and were the poster child for too generous features and not charging enough. I would definitely talk to a professional and figure out what you have before doing anything.
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