One of the benefits of owning an IRA is the ability to transfer funds directly to beneficiaries without going through a will.
Beneficiary spouses can claim inherited IRAs as their own—flexibility that allows the spouse to make new contributions to the inherited IRA and control the distribution.
“A spouse has a lot of options when they inherit an IRA,” says Gillian Nel, CFP®, CDFA, director of financial planning for Inscription Capital LLC, Houston, Texas can occur if the spouse is under 59.5 and needs to receive the money for whatever reason. The recipient account will avoid the 10% penalty owed on IRA distributions to holders under 59½.”
Unmarried beneficiaries cannot treat inherited IRAs as their own. They cannot add to them, and they must liquidate the account entirely within five years of the owner’s death, or distribute the amounts over their lifetime.
Generally, the options available are distributions depending on the age of death of the IRA holder. Keep this in mind if you are considering passing IRA assets to your children or grandchildren.
Individuals often transfer accounts from one financial institution to another. If you choose to maintain the same type of IRA account with another company, you can move the assets as a transfer or rollover.
In a transfer, assets are delivered directly from one financial institution to another and the transactions are not reported to the IRS. “When transferring funds to your IRA, you can make a direct transfer from one financial institution to another any number of times per year.
Keep in mind that each firm may have its account opening and closing fees, as well as an annual fee, so keep these fees in mind when making changes to a company,” says Rebecca Dawson, a Los Angeles, California-based financial consultant.
Rollover involves the transfer of assets to yourself and the transfer of the amount within 60 days. “When a group retirement plan like the Innovative Advisory Group in Lexington, Massachusetts.
You can also go the other direction and transfer your IRA assets to a 401(k) plan. However, the plan must allow this and determine whether the renewal can be done as a 60-day renewal or the funds must be paid directly to the plan. One reason for this is to protect IRA assets from RMDs.
Funds in the 401(k) where you currently work are not subject to RMDs when you turn 72, but the money in a traditional IRA will be. Do not pay taxes on the money if it does not need to be withdrawn for living. Consult with a tax advisor to make sure you make the transfer on time following IRS rules.
If you’re still working when you’re approaching 70½, shield your traditional IRA money from the required minimum distributions by transferring those funds to your 401(k) with that employer if your plan allows it.