Permalink Submitted by Alan Spross on Mon, 2008-06-02 21:24
Investment choices in an inherited IRA should be looked at no differently than you would in your own IRA or non IRA investment accounts, except of course that you cannot make prohibited transactions within an IRA.
If this is a non spouse inherited IRA, then you must take annual required distributions each year following the year of the owner’s death. Therefore, you should not tie up the entire balance in CDs, annuities etc that could result in a penalty from the issuer when you need to take the RMD.
Each RMD or any distribution you take is generally fully taxable. The exceptions would be in you inherited a Roth IRA, or if a traditional IRA you inherited was funded by non deductible contributions. In that case, distributions would be mostly taxable but a small portion would be tax free. You could find out if you inherited any non deductible contributions by checking with the executor or tax preparer of the decedent.
Most importantly, you need to know that you cannot rollover these funds. If you wish to change IRA custodians, it must only be done by direct trustee transfer. If you take possession of the funds (check made out to you), the entire amount of the check is taxable. You should also name your own successor beneficiary to the account ASAP.
Permalink Submitted by Alan Spross on Mon, 2008-06-02 21:24
Investment choices in an inherited IRA should be looked at no differently than you would in your own IRA or non IRA investment accounts, except of course that you cannot make prohibited transactions within an IRA.
If this is a non spouse inherited IRA, then you must take annual required distributions each year following the year of the owner’s death. Therefore, you should not tie up the entire balance in CDs, annuities etc that could result in a penalty from the issuer when you need to take the RMD.
Each RMD or any distribution you take is generally fully taxable. The exceptions would be in you inherited a Roth IRA, or if a traditional IRA you inherited was funded by non deductible contributions. In that case, distributions would be mostly taxable but a small portion would be tax free. You could find out if you inherited any non deductible contributions by checking with the executor or tax preparer of the decedent.
Most importantly, you need to know that you cannot rollover these funds. If you wish to change IRA custodians, it must only be done by direct trustee transfer. If you take possession of the funds (check made out to you), the entire amount of the check is taxable. You should also name your own successor beneficiary to the account ASAP.