Inherit an IRA? Don’t Miss This Important Deadline

Inherit an IRA? Don’t Miss This Important Deadline

Are you one of the several beneficiaries who inherited an IRA from someone who passed away in 2016? Then, December 31, 2017, is an important deadline for you. This deadline is your final opportunity to generate valuable tax benefits, among others, for each beneficiary by splitting up the IRA into multiple IRA accounts.
As a general rule, when there is more than one IRA designated beneficiary, the oldest beneficiary (beneficiary with the shortest life expectancy) is treated as the designated beneficiary for determining distributions. As a result, designating multiple beneficiaries for an IRA can put younger beneficiaries at a disadvantage as it will accelerate the younger beneficiaries’ distributions and inhibit tax deferral and tax-free growth.

On the other hand, if the beneficiaries split-up the inherited IRA into separate accounts (one for each beneficiary) by the end of the year following the original owner’s death, each beneficiary will act as his or her own designated beneficiary. Therefore, each beneficiary will get to use his or her own life expectancy for calculating distributions. Furthermore, each beneficiary can choose how his or her own IRA is invested.

If you have any questions information regarding inherited IRA’s, or other income tax questions, please contact a member of our Private Client Service Group.

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