Learn About Your Options
Inherited IRA
Equity Trust IRA would like to express our deepest condolences on the passing of your loved one. We realize you may be interested in continuing the potential for tax-sheltered growth of these assets.
What You Need to Know About Your Inherited IRA or a Beneficiary IRA
An Inherited IRA, or a Beneficiary IRA, is an account that is opened when someone inherits an IRA or employee-sponsored retirement plan after the death of the original owner.
Your relationship with the original owner of the account(s) will determine the different options that may be available to you.
Select the Tab Indicating your Relationship to the Deceased to Learn About your Options:
Spouse
If you inherit an IRA or employee-sponsored retirement plan directly from your spouse, you do have multiple options:
Option 1: Rollover into a new or existing IRA
You can transfer the assets and/or cash into a new or existing IRA and treat it as your own. Note that IRA type will need to remain the same. For example, Traditional IRA to Traditional IRA.
Option 2: Transfer the assets and/or cash
You can move the assets and/or cash into an inherited IRA. This account type will indicate that the assets were inherited by the original account holder.
Option 3: Distribute the assets and/or cash
You can distribute the assets and/or cash to yourself personally. This would take the assets out of the IRA and put them into your name personally. Keep in mind that this is a taxable event.
Option 4: Disclaim partial or all of the assets and/or cash
You can choose not to accept the inheritance. Your disclaimed inheritance would then be passed down directly to the next eligible beneficiary. This option can be complicated and should be discussed with a CPA or attorney. Note that if you would like to disclaim the account, you must disclaim the assets and/or cash within nine months of the IRA owner's death.
Person Other than Spouse
If you inherit an IRA or employee-sponsored retirement plan directly from someone other than your spouse, you do have multiple options:
Option 1: Transfer the assets and/or cash
You can move the assets and/or cash into an inherited IRA. This account type will indicate that the assets were inherited by the original account holder.
Option 2: Distribute the assets and/or cash
You can distribute the assets and/or cash to yourself personally. This would take the assets out of the IRA and put them into your name personally. Keep in mind that this is a taxable event.
Option 3: Disclaim partial or all of the assets and/or cash
You can choose to accept the inheritance. Your disclaimed inheritance would then be passed down directly to the next eligible beneficiary. This option can be complicated and should be discussed with a CPA or attorney. Note that if you would like to disclaim the account, you must disclaim the assets and/or cash within nine months of the IRA owner's death.
Estate, Entity, Charity, and some Trusts
An IRA owner can name an entity (such as a charity or other organization), an estate, or a trust s the account's beneficiary.
Estate:
When an estate is a beneficiary, the estate's executed will be responsible for carrying out a direction given by the IRA holder's last will and testament and for handling the inherited IRA. The estate will be considered the beneficiary of the inherited IRA even if a specific person is named to inherit the estate.
Entity:
Individuals can also name an organization that is not tax-exempt as an IRA beneficiary. However, these entities have limited ability to stretch RMDs.
Charity:
Individuals may want to list a charity as an IRA beneficiary. If the charity is qualified as a tax-exempt entity, it can take an immediate distribution of the entire IRA balance without having to pay income tax.
Trust:
Depending on estate planning, clients may name a trust as the beneficiary of their IRA. We do not require the entire trust document, but certain pages. We will need a copy of the first page showing the full official name of the trust, the page(s) identifying trustee and successor trustees, and the page(s) with trustee signatures.
If you have questions about which options would be best for you, you may want to consult with a CPA or other tax advisor.
Learn About Required Minimum Distributions (RMDs) for Beneficiaries:
Spouse
If you inherit an IRA from your deceased partner, you can move the assets into your own IRA, or you can move the assets into an inherited IRA. Required Minimum Distribution's (RMD) will differ depending on which option you choose.
Option 1: Inherited IRA
RMD for an "Inherited IRA" is based on your age and life expectancy factor. But you will need to start taking RMDs from an inherited IRA depending on the age of your spouse at the time of his or her death.
For Example:
If your spouse reached the age of *72, you would start taking RMDs by Dec 31 in the year after your spouse's death. However, if your spouse had not yet reached *72, you can delay RMDs until your spouse would have reached age *72.
Option 2: Your Own IRA
If you inherited an IRA from your deceased spouse and moved it into your "Own IRA," you can use the favorable Uniform Life Expectancy Table to calculate RMDs after you turn *72.
In addition:
If you are older than 59.5, you can begin withdrawing money from your IRA without facing the 10% IRS early-withdrawal penalty.
If you want to start taking distributions before the age of 59.5, you can also roll over the assets into an inherited IRA to avoid the 10% IRS early-withdrawal penalty.
Non-spouses
If the account owner died on or before December 31, 2019 you have the ability to take RMDs based on your age.
The SECURE Act, which passed at the end of 2019, eliminated the "stretch IRA" option for non-spouse inheritors of the IRAs. The law now requires that the original account owner died on or after January 1, 2020.
If the account owner died on or after January 1, 2020, generally, you will need to fully distribute your account within ten years following the death of the original owner.
However, there are some exceptions. This rule will not apply to minors until they reach the age of maturity. At that point, they would have ten years to take a full payout from the account. The new rules also would not apply to individuals who are disabled, chronically ill, or any other person who is not more than ten years younger than the deceased account holder under government definitions.
Entities (such as Charities, Estates, or Trusts)
If an IRA designates a beneficiary to be an entity instead of an individual, RMD will depend on the age of the original account owner upon death.
If the original account owner was still living by April 1 of the year in which the account holder reached age 72, RMD will be calculated based on the life expectancy factor of the original owner.
If the original account owner died before turning age *72, the entity must withdraw the entire balance in the account within five years following the year of death.
*New legislation: The SECURE 2.0 Act of 2022: retirement account owners who turn 72 on or after January 1, 2023, need to begin taking RMDs at age 73. Anyone that turned 72 on or before December 31, 2022, will not be affected by this change and will need to continue taking their RMDs as scheduled.
If you have inherited an IRA, the RMD rules you must follow depend on your relationship to the original deceased owner.
Next Steps: Notify Equity Trust
1. Report the death of a Equity Trust Client by filling out the form below.
2. Upload a copy of the death certificate via our secure portal.
3. Once we receive notification, we will update the accounts and begin the inherited IRA process. Equity Trust will contact you within 3 business days of receipt of the completed form.
Contact Us
Please feel free to contact the Inherited IRA Department with any questions.
(239) 236-2996
compliance@midlandtrust.com