Normally, retirement plan distributions made to a nonspouse beneficiary after the account owner’s death are taxable at the time they are received and cannot be rolled over to the beneficiary’s own IRA. However, employer-sponsored retirement plans are required to offer nonspouse beneficiaries the option to roll over inherited amounts tax-free in a direct (trustee-to-trustee) rollover to an inherited IRA. No taxes will be due on the inherited IRA rollover until the beneficiary receives a distribution from the inherited IRA. An inherited IRA is an IRA that has been acquired by a beneficiary on the death of someone other than a spouse.
The following special rules apply to an inherited IRA:
- The IRA must be a brand-new IRA set up for the specific purpose of receiving the inherited account.
- The IRA must be specially titled in the deceased account owner’s name.
- No other contributions may be made to the IRA.
- No other amounts may generally be rolled into or out of the IRA.
- Minimum required distributions will need to be made over the beneficiary’s life expectancy starting the year after the IRA owner’s death.
Please contact Martini, Iosue & Akpovi by phone at (818) 789-1179 if you have any questions or would like more information.