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When a spouse dies, one of the most important financial decisions that the surviving spouse must make is what to do with any Inherited IRAs. Inheriting an IRA can be both a blessing and a challenge, as it comes with several options for how to handle the money. It’s important for surviving spouses to understand their choices in order to make sure they are making the best possible decision when it comes to retirement planning and financial planning. In this post, we’ll explore some of those options so you can decide which path makes sense for your situation.
One of the first things to consider when it comes to Inherited IRAs is whether or not to keep the money in an IRA account. For some surviving spouses, this may be an attractive option as they can continue to benefit from tax-deferred growth and potentially pass on their Inherited IRA money to future generations. However, if the Inherited IRA contains a large amount of money that would be subject to significant taxes and/or penalties, it may make more sense for the surviving spouse to take a lump-sum distribution.
Another option is to convert the Inherited IRA into a Roth IRA. This type of IRA allows for tax-free growth on earnings, though taxes must be paid on the amount converted. Depending on the Inherited IRA’s value, this may end up being a more favorable option than continuing to keep money in an IRA account due to the tax savings.
Finally, the Inherited IRA can also be rolled over into other qualified retirement accounts like 401(k)s or traditional IRAs. This can be a good option for surviving spouses who already have an existing retirement account and want to consolidate their Inherited IRA into one place.
Inheriting an IRA is a complex decision, but armed with the right knowledge, it can be made easier. Understanding all of the options available and how each affects taxes, penalties, and retirement planning can help surviving spouses make the best decision for their situation. Knowing the ins and outs of Inherited IRAs can also help you ensure that your retirement plans are in order, even if an Inherited IRA is part of the equation.
No matter which option you choose, it’s important to consult a financial advisor to discuss Inherited IRAs and other retirement planning strategies. With the help of a professional, you can make sure that your Inherited IRA funds are being handled properly so that you can maximize their potential and secure your financial future.
All my best,
Brandon VanLandingham, CFA, CMT
This newsletter contains general information that is not suitable for everyone. The information contained herein should not be construed as personalized investment advice. Past performance is no guarantee of future results. There is no guarantee that the views and opinions expressed in this newsletter will come to pass. Investing in the stock market involves gains and losses and may not be suitable for all investors. Information presented herein is subject to change without notice and should not be considered as a solicitation to buy or sell any security Investment advisory services offered through Perissos Private Wealth Management, an Oklahoma Registered Investment Advisory.
