The Truth About Beneficiary IRA Accounts
Articles - Savings
A Beneficiary IRA or an Inherited IRA, as it is sometimes known, is when the account is transferred to a spouse or other beneficiary after the death of the account holder. The funds from an existing Traditional, Simple or Roth IRA are transferred into an Inherited IRA. This allows the funds to remain tax-free until the IRS requests that the funds are released.
by JessicaHaug


A Beneficiary IRA or an Inherited IRA, as it is sometimes known, is when the account is transferred to a spouse or other beneficiary after the death of the account holder. The funds from an existing Traditional, Simple or Roth IRA are transferred into an Inherited IRA. This allows the funds to remain tax-free until the IRS requests that the funds are released.

The beneficiary has to have been named by the account holder in order to be eligible to open a Beneficiary IRA. The existing IRA is transferred into the beneficiaries name and can basically be treated as their own, if they are a spouse.

Other beneficiaries cannot treat the new account as their own and they cannot add the funds to any other accounts in their name. It is also a fact that the original account must be closed. The Beneficiary IRA can either be a Simple, Roth or Traditional IRA and can be the same type as the original; it should be noted that extra payments cannot be made into a Beneficiary IRA. Until a Required Minimum Distribution request is received the contributions can be deferred.

The beneficiary of an Inherited IRA is subject to certain rules regarding the new account. These are based on the type of Beneficiary IRA the person has, as well as the age of the account holder when the passed on and the kind of IRA that was inherited by the beneficiary.

In 2001 new rules were brought out to give more benefits to the Beneficiary IRA. The previous rules meant that the amount held in the account would have to be used up within 5 years. It is now the case that the money can been taken over a longer period of time, decades in some cases. This benefits the beneficiary as the money is still tax exempt.

The new rules also meant that the original account holder could pay smaller RMD's potentially leaving a larger amount in the account for the beneficiaries to inherit. It also meant that a spouse could either use the new account for themselves or add their own beneficiaries. This would result in the beneficiaries receiving that account one the spouse had died too.

It is essential that you have the best retirement plan in place for you, as an individual. There are many kinds to choose from and choosing the best retirement plan is no mean feat. However, it is worth taking the time to plan for your retirement as the money you need to survive after you retire will not fall into your lap.

Beneficiary IRA or Inherited IRA accounts may seem daunting but a wealth of information to help you is available on the World Wide Web. If you prefer, you may talk to a financial expert to help you determine if a Beneficiary IRA is right for you.

DISCLAIMER: This article is provided as information only and is not to be taken as financial advice.

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