This Daily Tax Tip Spotify Podcast and/or WordPress Blog Post understands that you have Inherited a Traditional Individual Retirement account (IRA) and would like some general information on how to treat that IRA for federal income tax purposes.
Unlike an IRA Inherited from a spouse, you cannot treat the inherited IRA as your own. This means you cannot make any contributions to the IRA, and cannot roll over any amounts into or out of the inherited IRA.
You may, however, make a tax-free “Trustee to Trustee Transfer” of the IRA’s assets into another IRA, as long as the IRA into which amounts are being moved is set up and maintained in the name of the deceased IRA owner for your benefit as beneficiary.
A trustee-to-trustee transfer is a transfer of the assets in an IRA from one trustee directly to the trustee of another IRA. Such a direct transfer is not considered a rollover, because there is no distribution to you – but because there is no distribution, the transfer, like a rollover, is Tax Free.
You generally will not owe tax on the assets in the inherited IRA until you receive distributions from it. However, you must begin receiving distributions from the IRA under the Minimum Required Distribution Rules that apply to beneficiaries.
If the person from whom you inherited the traditional IRA had a basis in the IRA because of nondeductible contributions he or she made to the IRA, that Basis Remains with the IRA. You cannot combine this basis with any basis you may have in your own traditional IRAs or any basis in traditional IRAs you may have inherited from other individuals.
If you take distributions from both an inherited IRA and your own IRA, and you have a basis in each, then you must complete separate Forms 8606, Nondeductible IRAs, to determine the taxable and nontaxable portions of those distributions.
Please call me at your convenience so that we can discuss in detail your options for handling your Inherited IRA.
Please contact the office of Don Fitch Accountancy at (760)567-3110 or Email Don.Fitch@CPA.com if you have any questions or would like additional information.
DON FITCH, CPA
74478 Highway 111 #3
Palm Desert, CA 92260
Toll Free: (877)CPA-Help or (877)272-4357
P.S. My firm is based upon referrals. Please feel free to refer my firm to anyone you know that is looking for a new CPA and/or tax preparer. Thank you in advance.
(Updated 06302021 320-505)