Inherited IRAs and Avoiding Penalties -- It May Be Complicated

XPYRIA Team Insights

Inherited IRAs and Avoiding Penalties -- It May Be Complicated

Michael B. Giammatteo XPYRIA Team Insights

I am often reminded of a wise friend’s common lead into an explanation, “It’s complicated…”. This has never been more correct than looking into inherited IRAs and distribution plans.

If you inherited an IRA in the post Secure Act of 2020 world, you most likely have heard that as a non-spouse beneficiary that you have 10 years in which to take out all the assets and do not have to take money out each year. This is true in some situations and not in others. One of the complicating factors for an inheritor of an IRA is the Required Beginning Date (RBD). The RBD is the date that required minimum distributions from IRAs is to begin. If the IRA owner was past his/her RBD then you will likely need to take required minimum distributions annually and complete the disbursement of assets from the IRA in 10 years.

Another potentially complicated situation, is inheriting spouse of an IRA before age 59 1/2. You should carefully consider your choices as to whether you roll the assets into your own IRA or establish an inherited IRA. There are benefits and detriments to each and your unique situation will dictate the best path forward. For example, if you roll it into your own IRA account and then need the money you would be subject to the 10% early withdrawal penalty.

While these are just two examples of how the rules for an Inherited IRA may be complicated as there are many nuances to the IRS rules. You can rest easy as XPYRIA Investment Advisors has navigated these situations for each person’s circumstances to arrive at the best path forward.

About the Author

Michael B. Giammatteo

Principal and Senior Client Advisor
Mr. Giammatteo conducts investment research that is instrumental in the design, construction, and management of client portfolios. He is responsible for the procurement of primary investment research for the exclusive benefit of the Firm and its clients. Mr. Giammatteo and our research staff put each investment idea through a quantitative and qualitative review prior to being presented for final approval to the Firm’s Investment Committee. Mr. Giammatteo is a member of the Firm’s Investment Committee.  In addition, Mr. Giammatteo provides investment advice to closely held businesses, Taft-Hartley plans, non-profit [501(C) (3)] organizations, union accounts, government entities, and high-net-worth individuals.