What Happens If I Inherit An IRA?

  • Estate Planning
What Happens If I Inherit An IRA?

If you inherited an Individual Retirement Account (IRA) you have to make some serious decisions to make sure you don’t waste a lot of money on easily avoided errors. The Setting Every Community Up for Retirement Enhancement Act of 2019, better known as the SECURE Act was intended to help prevent older Americans from outliving their assets.

The SECURE Act made a major change for IRA beneficiaries, including eliminating Stretch IRAs for most beneficiaries. In most cases, an inherited IRA must be fully distributed within 10 years after the original owner passed away.  If the IRA is not fully distributed within 10 years, a 50% penalty of the amount that was supposed to be distributed but wasn’t will be assessed on the account.

The 10-year distribution rule applies to both traditional IRAs and Roth IRAs if the original IRA owner passed away after 2019. Beneficiaries who inherited IRAs before 2020 are grandfathered under the old Stretch IRA rule. The 10-year rule applies only when the original owner of the IRA passed away after 2019.

The SECURE Act also applies to 401(k)s and many other beneficiary accounts.

Surviving Spouses

The 10-year rule does not apply to surviving spouses who are IRA beneficiaries. Surviving spouses have the same options they had before the SECURE Act including the Stretch IRA.

It’s important to name the right IRA beneficiaries and to ensure that your beneficiaries consult an experienced estate planning attorney who understands all the new inheritance rules under the SECURE Act.

Lombard Estate Planning Attorney

Meeting with an estate planning attorney helps you prepare for the unknown and the unexpected. Though it may be tempting to put off, creating an estate plan can help prevent serious issues down the road. When you work with an attorney to decide what will happen to your assets after you die, they can create an estate plan that gives you peace of mind today. To talk to an experienced estate and probate attorney contact the Estate & Probate Legal Group in Lombard Illinois at 630-382-8075.