This Daily Tax Tip Spotify Podcast and/or WordPress Blog Post understands that you have inherited a Traditional Individual Retirement Account (IRA) from your spouse and would like some general information on how to treat that IRA for federal income tax purposes.
When you inherit a Traditional IRA from your Spouse, you generally can:
(1) elect to treat the IRA as your own IRA by Designating Yourself as the Account Owner;
(2) elect to treat the IRA as your own by rolling it over into your own IRA, or to the extent it is taxable, into a qualified employer plan, a qualified employee annuity plan, a tax-sheltered 403(b) annuity plan, or a 457 Deferred Compensation Plan of a state or local government; or
(3) treat yourself as the Beneficiary of the Inherited IRA, rather than electing to treat the IRA as your own.
You can elect to treat the IRA as your own only if you are the Sole Beneficiary of the IRA and have an unlimited right to withdraw amounts from it. This requirement is not satisfied if a trust is named as beneficiary of the IRA, even if you are the sole beneficiary of the trust.
You are considered to have elected to treat an inherited IRA as your own if you make contributions (including Rollover Contributions) to the inherited IRA, or you do not take the required minimum distribution for a year as a beneficiary of the IRA.
You generally will not owe tax on the assets in the inherited IRA until you receive distributions from it. If you elect to be treated as the owner of the IRA, you determine your required minimum distribution as if you were the IRA owner beginning with the year you elect or are deemed to be the owner. However, if you become the owner in the year your spouse died, you may either figure the Required Minimum Distribution for that year using your own life, or take your spouse’s required minimum distribution for that year (to the extent it was not already distributed to your spouse prior to death).
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 07012021-01 320-506)