An inheritance is never just financial. It’s a reflection of the care and effort someone put into building a legacy, and when that legacy comes in the form of an Individual Retirement Account (IRA), it can feel like both a gift and a responsibility. The decisions you make about an inherited IRA affect not just your taxes, but how well that legacy supports your own goals.
Understanding the New Rules
Recent law changes mean most non-spouse beneficiaries must fully withdraw inherited IRAs within 10 years. Gone are the days of stretching withdrawals across your lifetime. This creates both urgency and opportunity: you’ll need to plan ahead, but you also have flexibility in how and when to take distributions.
Spouse vs. Non-Spouse Beneficiaries
Spouses typically have the most options. They can roll the IRA into their own and treat it as if it were always theirs, delaying distributions until retirement. Non-spouse beneficiaries don’t have that option, but they can still control the pace of withdrawals over the 10-year window.
Balancing Taxes and Goals
Every dollar you withdraw from a traditional inherited IRA is taxed as ordinary income. Taking it all at once could push you into a higher bracket, while spreading withdrawals may reduce the bite. Roth IRAs are simpler; you’ll still need to empty the account in 10 years, but distributions are generally tax-free. The best path for navigating this 10-year timeline depends on your income, tax picture, and financial needs.
Honoring the Legacy
Ultimately, inheriting an IRA is about more than following rules. It’s about maximizing the impact of what a loved one worked to leave behind. That means aligning withdrawals with your life, whether it’s funding milestones, reducing debt, or investing for your own future.
If you’ve recently inherited an IRA and want to discuss how to make the most of this gift, let’s talk. At Hanover, we can help you honor the legacy while making choices that support your next chapter.