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Learn the Rules of Inheriting an IRA from a Non-Spouse

Inherited IRAInheriting an IRA from a family member or loved one who is not your spouse has slightly different rules from inheriting an IRA from a spouse. Here are some things to consider if you find yourself with an inherited IRA:

  • You may not roll the IRA into an existing IRA that you own.
  • You can create an inherited IRA in your name. You may be required to withdraw a percentage of the IRA’s value on an annual basis (based on your life expectancy) and that money will be subject to income tax.
  • You cannot combine an inherited traditional IRA with an inherited Roth IRA.
  • There is no 60-day rollover rule for inherited IRAs from a non-spouse (meaning if you withdraw money and put the same amount back into the account within 60 days it won’t be taxed). If you withdraw any money from the account it will be taxed.
  • Traditional IRAs: take a lump sum distribution and pay income taxes on the entire amount. There is no 10% penalty.
  • Roth IRAs: take a lump sum distribution. If the account is less than 5 years old, earnings are taxable.

Non-Spouse Inherited IRA Withdrawal Options

It is possible to withdraw funds from an inherited IRA from a non-spouse if you are younger than age 59½ and avoid a 10% penalty to the IRS. However, you will have to pay income tax on the withdrawn amount.

If you inherit a Roth IRA from a non-spouse, and that account was set up more than 5 years prior, distributions will be tax-free.

If you are inheriting an IRA from someone who is not your spouse, make sure you understand the laws to avoid major tax penalties. Let the experienced Denver estate lawyers at The Brown Law Firm LLC help you understand your options. Contact us today: call (303) 339-3750 or send us a message online.