Mark Kohler explains how beneficiaries can stretch inherited IRAs to minimize taxes. Spouses can roll the IRA into their own and defer withdrawals until 70½. Non-spouse beneficiaries must take required minimum distributions immediately or face a 50% penalty, but can invest inherited Roths in real estate or businesses tax-free.
Chapters
Hi, Mark Kohler here with another two minute tax and legal tip. I'd like to talk about the stretch IRA or what to do with an inherited ira. Let's assume that you've been the beneficiary of a loved one's IRA that's passed away. It could be a spouse, a parent, a grandparent, and they left you an IRA or a Roth ira. And now you ask yourself what can I do? Now the general rule is, is that you're supposed to pull that money out immediately or within five years and potentially pay taxes on it. But are there options? Well, that's where the stretch IRA comes in. Let's talk about four considerations or things to think about. Number one, if you're a spouse and the beneficiary of your deceased spouse ira, you have the most options available. You can do a variety of things and most importantly, you want to use the stretch ira. So by rolling over your deceased spouse IRA into your own ira, you can even open a new IRA account. You can do a variety of things, whether it's a Roth or traditional. Again, you've got the most options available as any beneficiary if it's your spouse's IRA that you're inheriting. So start with a spousal rollover and get it into your own ira. And you don't even have to start taking distributions. You can wait until you're at the latest spouse 70 and a half years old and start taking RMDs or required minimum distributions. But you don't have to start right away. You can wait until that later date. So again, as a spouse, know that you've got the most options and the stretch IRA is a great way to go. Number two, let's assume you're a non spouse beneficiary. Maybe a parent passed away and left you an ira. Well, you got to be aware of a couple important rules if you want to do the stretch ira and you still can, but you can't roll it into one of your pre established IRAs. And there's some specific verbiage that needs to be used for the through this process, you want to talk to the IRA custodian or broker dealer that you're going to be using for your ira. You have to open a new IRA account and roll that IRA or transfer it into a new IRA. And you can't do a 60 day rollover. And it's got to be an account that's established with the name, that's an inherited ira. So make sure you understand those rules. But the Second piece of this that's most important is that you have to start required minimum distributions or RMDs immediately. Now it's based on your life expectancy. So you have to look at if I'm 40 years old, I might have a life expectancy of another 30 years. And so you would then spread out that IRA's distributions over your life expectancy, not your parents. So you want to run the numbers and find out what that table says based on your life and life expectancy expectancy and start RMDs immediately. If you don't start them by December 31st in the year your parent passed away, there's a up to a 50% penalty. So you got to get started on that immediately. If some of you haven't done that yet, get going and talk to your accountant right away to start those RMDs. But the beauty is you don't have to distribute it within five years or take it out all at once. You can spread it out over time. Number three, let's talk about the Roth factor. Now we love Roth iras because you don't pay tax on the distribution. And there's no penalty to pull out money out of an inherited Roth ira because you inherited it, there's no penalty. So lots of options. Now first for spouses, again, sky's the limit. You can take that inherited Roth IRA from your spouse and put it in your own Roth IRA and just wait to take distributions anytime you want until you're required to at age 70 and a half. However, if you're a non spouse beneficiary, then you've got to start your RMDs right away just as if it was a traditional IRA. But again, there's no tax or penalty. You could pull out all the money faster if you want. It's up to you. But you've got at least take out a minimum amount based again on your life expectancy and look at the tables for those RMDs for that Roth IRA. Now there's one last important point I want to make. Number four, and that is again, you can self direct your IRAs. I say again because I talk about this all the time and many people don't realize how powerful inherited IRA can be, especially an inherited Roth ira, because you can take that inherited IRA as a spouse or a non spouse beneficiary, get it set up, but then you can invest it. You can invest it in what you know best. Invest in real estate, racehorses, a restaurant, a business, notes, whatever. It doesn't have to be stocks, bonds and mutual funds. Remember, you're driving a vehicle and what you put in the back seat is up to you. So the beneficiary is Roth IRA is just amazing because you can invest it, create more wealth tax free and pull it out tax free as long as you're meeting those required minimum distributions if you're a non spouse beneficiary. But for the spousal beneficiary, oh my gosh, start investing that Roth IRA and anything you make tax free. In summary, I know this is probably a sensitive topic if you are reading about a stretch IRA because someone's passed away and you've inherited it. So I apologize for my excitement talking about the potential of what to do with this IRA and but I love saving taxes. I love building wealth and protecting it. These IRAs can be amazing. So maybe I'm a glass full kind of guy, so my condolences to the passing of that loved one. But let's take this IRA and use it. Let's stretch it, invest it, and invest it in what you know best. Now if this all sounds new and amazing to you, please check out the information below and listen here in a minute as to how you can better get involved with our firm, law firm or accounting firm to help you better live your American dream. Thanks for watching and if you love that video, I've got a lot more. Please subscribe to my channel and I shoot weekly videos that can help you in your business, personal life and better live your American dream. Also, check out my newsletter free newsletter every week with blog articles, tips, strategies, tax deadlines. You'd love it. Also, if you like social media, please follow me on social media with some daily tips and if you like to connect that way, it could be a lot of fun. But finally, please check out my tax and legal Library. I have 50 plus videos on these topics and more where I pull out a whiteboard and break them down. Hours and hours of helpful information that can better help you live the American dream.
