INHERITING 401(k), IRA OR OTHER TAX DEFERRED ACCOUNT FROM A PARENT OR SPOUSE

In the event you inherit a tax deferred Account from a parent or spouse, do not liquidate or transfer the Account until you seek qualified advice regarding the transfer of the Account.  The IRS has specific rules that must be followed regarding tax deferred Accounts.  Liquidating or transferring an inherited Account without qualified advice may cause you to lose tax benefits and could cause the entire distribution to be treated as taxable income to you.

If your parent or spouse did not withdraw the full required minimum distribution (RMD) from his or her IRA in the year of passing, then you will need to withdraw the remaining RMD before December 31 of that year.

The RMDs can be structured to minimize your income tax liability, such as stretching the withdrawals out during the period of your life expectancy.  If you fail to withdraw your required RMD in any given year, the IRS will subject you to a 50% penalty of the amount that you failed to withdraw.

It is also possible to ultimately transfer an inherited IRA to grandchildren, which can effectively extend the tax deferred status for decades.

Use extreme caution with an inherited IRA, especially one with a high value, making sure to seek qualified advice before any decisions are made regarding the IRA.

Pyfer Reese Straub Gray & Farhat PC is here to assist you and to help you navigate through the complex estate administration process.  Our experienced attorneys can provide you with advice to ensure you receive the maximum net benefit possible from your inherited 401(k) or other tax deferred Retirement Account.  Contact us at 717.299.7342 for an appointment with Attorneys Christopher C. Straub, Sandra Edwards Gray, or Albert J. Meier.

~Christopher C. Straub, Esquire