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Tate Asset Management


Tate Asset Management

5531 Cancha de Golf

Suite 206

Rancho Santa Fe, CA 92091


Inherited IRA

”When structured properly, you can turn an inherited IRA into your own tax-deferred lifetime income generator.”

What are your options when you inherit an Individual Retirement Account?

Individual Retirement Accounts, or IRAs, are powerful tax-sheltered accounts designed to save for an individual’s retirement.  However, IRA balances often outlast their owners, and are passed to beneficiaries.  If you inherit an IRA, you have several options:

  • Take the money now.  While this can be a tempting option, it may not always be the most tax-efficient.  Distributions from an inherited IRA are subject to ordinary income taxes, at your current marginal income tax rate.  Withdrawing the entire balance of an inherited IRA can push you into a substantially higher tax bracket.  Chances are good that waiting may be the better choice.  
  • ”Stretch” the IRA.  For most recipients of inherited IRAs, distributions from the inheritance can be “stretched” out over your life expectancy.  This method allows the tax-qualified IRA to prolong it’s favorable tax deferral, and can allow the assets within the IRA to grow tax-deferred and potentially provide you with a substantial stream of income over your lifetime.  The IRS requires that you take money out of the IRA, however if done properly, the stretch technique can be a very powerful retirement strategy for the inheritor.
  • Donate it to Charity. Recent changes to tax laws allow you to donate a portion of an IRA distribution to charity. According to IRS Publication 526, the recipient of your donation must be a qualified charity in order for you to claim a tax deduction; Individuals don't qualify.  To claim the tax break, you must itemize your deductions.
  • “Disclaim” the inheritance. This strategy can be useful in certain situations where another beneficiary, such as a child or grandchild can receive the IRA.  Done properly, a disclaimed IRA can bypass you, and go to another heir without impacting your taxes.

IRAs have required minimum distributions, depending on many factors, including the age of the original owner, the age of the owner upon his or her passing, your age, and your life expectancy.  A word of caution: the penalties for missing required distributions from your IRA can be as high as 50% of the distribution amount, in addition to the ordinary income taxes.  

We recommend that you work with a professional advisor to automate your distribution strategy, and ensure you comply with the IRS’ rules on required distributions.  Done properly, an inherited IRA can turn into your own lifetime income generator.  

Our team of experts can help you select the best distribution strategy for your inherited IRA.  Call or email today for more information.  

Please consult with your own tax professional regarding your own tax circumstances.  This information is not intended to be tax advice.