How to make sure that inherited IRA doesn’t cost you big time

Personal Finance

An inherited IRA must be created from the existing IRA, and not doing so the correct way can cost you.

“If mom leaves you an IRA, it’s not your IRA [and] you can’t put it in your own name,” Slott said. “If you put it in your own name, it’s taxable.”

In addition to not putting the money in your own IRA, beneficiaries cannot roll the money into a Roth IRA, either, because Roths are funded with post-tax dollars. And inherited Roth IRAs are subject their own special set of rules.

Instead, inheritors should make a trustee-to-trustee transfer to ensure the funds are not erroneously distributed to them.

A properly established inherited IRA account should include the name of the deceased in its title along with the beneficiary. In his ebook on IRAs, Leon LaBrecque, CEO of LJPR Financial Advisors, cites the following example: “John Smith, IRA (deceased December 16th, 2014) FBO John Smith Jr., beneficiary.”

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