7 Steps to Take When Inheriting a Retirement Account
Inheriting something is not the same as knowing what to do with it, and that may be especially true with retirement accounts. As a bit of guidance I found a recent article from Forbes offering seven steps to take if you have recently received an inheritance, or if you know that you will receive an account. Likewise, if you are planning on leaving a retirement account or if you want to keep your beneficiary in the know, these are some of the things to discuss with them. Without further ado then, a slightly re-tooled list of ideas:
- Find out if a required minimum distribution (RMD) needs to be taken for the year you receive it. If the account is tax-deferred (like a traditional IRA or 401k) and the owner was at least 70½ then you need to contact the account custodian to be sure that it has been taken and to take it yourself if needed.
- If there are multiple beneficiaries, then consider splitting the account into separate IRAs for each, thus avoiding investment disputes and allowing the younger beneficiaries greater leverage in stretching out RMD’s.
- If there are secondary beneficiaries you can choose to disclaim the IRA, especially if it’s not something that you need or even a tax burden, and in that way pass it on to the next.
- You need to figure out when to begin taking RMD’s. If you’re not the spouse of the deceased, this means re-titling the account to reflect that it is yours by way of a beneficiary inheritance. If you are the spouse this either means waiting until your spouse would have begun taking them (when they would have turned 70½) or rolling it into your own IRA and taking it as your own.
- Determine if you want to keep the account in the original institution. Some institutions don’t allow you to take distributions across your own lifetime and you may just want to shift it over. In that case it is often best to open an account at another institution and ask them to retrieve the account (rather than backing it out yourself, as that can be risky.)
- Name your own beneficiaries and secondary beneficiaries, ensuring the protection of the account and giving flexibility to your heirs.
Reference: Forbes (August 23, 2011) “7 Steps to Take When Inheriting a Retirement Account”