Starting this year, if you inherit a 401(k) or other qualified company retirement plan from someone other than your husband or wife, you may be able to transfer the balance directly to an IRA. And that\'s a really big deal.
The new rule gives you a valuable opportunity to stretch your distributions -- and the tax bite -- over your lifetime while the investments continue to grow tax-deferred. Previously, only spouses could roll over an inherited company plan to an IRA. Everyone else usually ended up taking distributions in a lump sum or over a few years -- and paying substantial federal and state taxes just as quickly.
To get the full benefit, it\'s important for children, grandchildren, siblings and other named beneficiaries to follow the rules exactly, says IRA expert Ed Slott, a CPA in Rockville Centre, N.Y. That means you must transfer the money directly into a properly titled inherited IRA that\'s maintained in the name of the deceased -- for example, \"John Smith\'s IRA (deceased Jan. 1, 2007) for the benefit of Mary Jones, daughter.\"
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.
Trying to roll the inherited money into your own IRA or cashing a distribution check made out to you could mean big trouble because you\'d owe taxes on the entire amount. So watch out, warns Slott. A company isn\'t required to transfer the money automatically to an inherited IRA. If it insists on issuing a check, make sure the check is made out directly to the inherited IRA and not to you.
-
Stock Market Today: The Dow Adds 15 Points To End Its Losing StreakEquity indexes opened higher but drifted lower as markets priced in new Fed forecasts.
-
What Is a Qualified Charitable Distribution (QCD)?Tax Breaks A QCD can lower your tax bill while meeting your charitable giving goals in retirement. Here’s how.
-
457 Plan Contribution Limits for 2025Retirement plans There are higher 457 plan contribution limits for state and local government workers in 2025 than in 2024.
-
What Does Medicare Not Cover? Seven Things You Should KnowHealthy Living on a Budget Medicare Part A and Part B leave gaps in your healthcare coverage. But Medicare Advantage has problems, too.
-
13 Smart Estate Planning Movesretirement Follow this estate planning checklist for you (and your heirs) to hold on to more of your hard-earned money.
-
Medicare Basics: 11 Things You Need to KnowMedicare There's Medicare Part A, Part B, Part D, Medigap plans, Medicare Advantage plans and so on. We sort out the confusion about signing up for Medicare — and much more.
-
The Seven Worst Assets to Leave Your Kids or Grandkidsinheritance Leaving these assets to your loved ones may be more trouble than it’s worth. Here's how to avoid adding to their grief after you're gone.
-
SEP IRA Contribution Limits for 2024 and 2025SEP IRA A good option for small business owners, SEP IRAs allow individual annual contributions of as much as $69,000 in 2024 and $70,000 in 2025..
-
Roth IRA Contribution Limits for 2024 and 2025Roth IRAs Roth IRA contribution limits have gone up. Here's what you need to know.
-
SIMPLE IRA Contribution Limits for 2024 and 2025simple IRA The SIMPLE IRA contribution limit increased by $500 for 2025. Workers at small businesses can contribute up to $16,500 or $20,000 if 50 or over and $21,750 if 60-63.
