My brother passed away, and I am the beneficiary of his traditional IRA. What are my options for withdrawing the money, and how will the money be taxed?
Your distribution choices depend on whether your brother had begun taking required minimum distributions from the account. If he was older than 70½, the age that triggers mandatory distributions, you have two choices: You can continue to take annual withdrawals based on your brother’s withdrawal schedule, or you can take withdrawals based on your own life expectancy. If he died this year, you have until the end of 2012 to decide.
If you are younger than your brother, take the distributions over your longer life expectancy to minimize your annual distributions, which are taxable, and allow the balance to continue to grow in the tax-deferred account. (You can always withdraw more than the minimum required amount.) See IRS Publication 590, Individual Retirement Arrangements, for details.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
If your brother had not yet started to take required minimum distributions, you can either take annual withdrawals based on your own life expectancy or withdraw all funds in the account by the end of the fifth calendar year after his death. The entire amount (except for any nondeductible contributions) will be taxable at the time of withdrawal.
Spouses who inherit a traditional IRA have additional distribution options. They can treat the inherited IRA as their own, rolling over the money into their IRA, which would subject them to all the usual contribution and distribution rules and age limits. Or, a surviving spouse can elect to be treated as a nonspouse beneficiary, allowing her to take distributions from the inherited IRA over her lifetime, starting in the year after the original owner’s death. That could be a good choice for someone who is younger than 59½ to avoid the early distribution penalties she might incur if she rolled the inherited IRA into her own account.
For more information about inherited IRAs, see Maximize and Inherited IRA.
-
Stock Market Today: Stocks Close Mixed Amid War Angst, Nvidia AnxietyMarkets went into risk-off mode amid rising geopolitical tensions and high anxiety ahead of bellwether Nvidia's earnings report.
-
What the Comcast Cable Spinoff Means for InvestorsComcast has announced plans to spin off select cable networks and digital assets into a separate publicly traded company. Here's what you need to know.
-
Getting Out of an RMD Penaltyretirement When your brokerage firm miscalculates your required minimum distributions, you have recourse.
-
Borrowers Get More Time to Repay 401(k) Loans
retirement If you leave your job while you have an outstanding 401(k) loan, Uncle Sam now gives you extra time to repay it -- thanks to the new tax law.
-
It’s Not Too Late to Boost Retirement Savings for 2018
retirement Some retirement accounts will accept contributions for 2018 up until the April tax deadline.
-
How to Correct a Mistake on Your RMDs from IRAsretirement If you didn't take out the correct required minimum distribution because your brokerage firm made a mistake, the IRS may show some leniency.
-
Ways to Spend Your Flexible Spending Account Money by March 15 Deadline
spending Many workers will be hitting the drugstore in the next few days to use up leftover flexible spending account money from 2018 so they don’t lose it.
-
Making the Most of a Health Savings Account Once You Turn Age 65
Making Your Money Last You’ll face a stiff penalty and taxes if you tap your health savings account for non-medical expenses before the age of 65. After that, the rules change.
-
Reporting Charitable IRA Distributions on Tax Returns Can Be Confusing
IRAs Taxpayers need to be careful when reporting charitable gifts from their IRA on their tax returns, or they may end up overpaying Uncle Sam.
-
When You Can Expect to Receive Your Tax Refund
taxes The quickest way to receive your tax refund is to file electronically and have the money directly deposited into your bank account.
