Inherited IRA and ESOP
Hello:
Thank you for the opportunity to ask a question. I have inherited an IRA and retirement ESOP and I’m scared of big tax consequences and don’t know what to do. Someone has told me that with the IRA I would have to roll it over into an inherited IRA, and have minimum distributions over my lifetime. Is that true? Does the ESOP have the same requirement? It is currently in shares of a company, and I don’t know if the shares were purchased pre-tax or not, or how my cost basis would be computed if I took a lump sum. I know that this is limited information, but what should I do? I can try to answer any questions the best I can. Thank you.
J.W.
Permalink Submitted by Alan - IRA critic on Sat, 2016-11-12 02:09
You should submit a copy of the death cert and other paperwork to have the IRA retitled showing you as the beneficiary. If the decedent was your spouse, please advise. As a non spouse you generally would have to take RMDs over your life expectancy. A non spouse inherited IRA can only be moved by direct transfer. You cannot receive a distribution and roll it over so be careful not to order a distribution. The ESOP has more complex options. Contact the plan administrator and find out what your options are, specifically if you can utilize NUA under which gains are taxed at the lower LT cap gain rates. Otherwise, you can do a direct rollover of the shares over to an inherited IRA, then sell the shares to diversify your holdings. You should not hold large amounts of a single investment to avoid the risk of major losses. If you have an IRA now with a major institution, perhaps they can provide you with some help, at least to make sure you make the correct decisions in establishing the accounts under your name as beneficiary.