Our financial lives can often seem like a puzzle, with various pieces that need careful consideration. A perfect example of this is the world of inherited IRAs. In this blog, we’ll break down the complexities of inherited IRAs and shed light on what you need to know.

The Basics: What is an Inherited IRA?
If you’ve recently inherited money from a loved one, especially through an IRA, you now own what’s known as an “inherited IRA.” While the concept might seem straightforward, the treatment of these funds can quickly become intricate. This complexity is further exacerbated by legislative changes like the Secure Act and Secure Act 2.0, which have added layers of complication to the process.

Spousal vs. Non-Spousal Inheritance: Key Differences
Before delving into the intricacies, it’s crucial to distinguish between inheriting an IRA as a spouse and as a non-spouse. Spousal inheritance follows different rules and is generally more straightforward. However, for non-spouse beneficiaries, the situation gets a bit more convoluted.

Three Crucial Aspects of Inherited IRAs
When it comes to handling an inherited IRA as a non-spouse beneficiary, there are three essential factors you need to be aware of:

  1. The 10-Year Rule: Understanding Withdrawal Requirements
    If you inherited an IRA after January 1, 2020, as a non-spouse beneficiary, you are required to withdraw the entire IRA balance within the 10-year period following the original owner’s passing. This rule often results in additional taxable income for the beneficiary. However, certain exceptions apply, such as for surviving spouses, disabled or chronically ill individuals, minor children, or beneficiaries within a specific age range of the original IRA owner.
  2. Required Minimum Distributions (RMDs): A Yearly Obligation
    Non-spouse beneficiaries must adhere to Required Minimum Distributions (RMDs) set by the IRS. RMDs dictate the minimum amount that must be withdrawn annually, based on the original IRA owner’s age at the time of their passing. Additionally, the entire IRA balance must be withdrawn by the end of the 10-year period, adding another layer of complexity to the process.
  3. The Option to Disclaim: A Strategic Decision
    In certain situations, beneficiaries have the option to “disclaim” the inherited IRA. This means refusing the inheritance, and allowing the assets to pass to someone else. Disclaiming might be a wise choice for individuals with substantial estates, aiming to avoid potential income and estate taxes associated with the additional assets. Alternatively, it could be a way to pass the funds to someone in greater need.

Simplifying the Complexity: Working with Wealth Dimensions
While the intricacies of inherited IRAs can be overwhelming, there’s no need to navigate this complex terrain alone. Managing such financial matters might not be the best use of your valuable time, especially considering the demands of everyday life. That’s where Wealth Dimensions comes in. Our expert team can help you decipher the details, evaluate your options, and make strategic decisions tailored to your unique circumstances.

If you have questions about inherited IRAs or any other financial matters, don’t hesitate to reach out to us directly. Our dedicated professionals are here to guide you through the process, helping you make informed choices for your financial future.

Understanding the complexities of inherited IRAs is crucial for making sound financial decisions. By staying informed and seeking professional guidance, you can navigate this intricate landscape with confidence, helping secure a stable financial future for yourself and your loved ones.

For informational purposes only. Not intended as investment advice or a recommendation of any particular security or strategy. Information prepared from third-party sources is believed to be reliable though its accuracy is not guaranteed. Opinions expressed in this commentary reflect subjective judgments of the author based on conditions at the time of writing and are subject to change without notice. For more information about Wealth Dimensions, including our Form ADV Part 2A Brochure, please visit https://adviserinfo.sec.gov or contact us at 513-554-6000. Please be advised that this material is not intended as legal or tax advice. Accordingly, any tax information provided in this material is not intended and cannot be used by any taxpayer for the purpose of avoiding penalties that may be imposed on the taxpayer.