Inherited IRAs can offer time assistance and comfort to the beneficiary of a retirement plan or IRA account who needs to make a decision on their inherited funds in a timely manner.

Key characteristics and benefits:

  • Inherited IRAs consist of retirement funds that the beneficiary inherited from a previous owner who has passed away.
  • Contributions are not allowed into an Inherited IRA.
  • Inherited IRAs can offer numerous benefits depending on your relationship to the deceased and also the type of Inherited IRA you open (Traditional or Roth).
    • If you were the spouse of the previous retirement owner, you can treat the IRA as your own and transfer the retirement funds into your own regular IRA.
  • Inherited IRAs give the beneficiary the benefit of delaying tax consequences on the inherited funds (as applicable), while also allowing the inherited funds to continue to earn dividends in the process.
    • Example: Instead of taking a lump sum of their inherited portion and being subject to taxes immediately on those funds withdrawn, a beneficiary of a Traditional IRA may opt to transfer those funds into an Inherited IRA, providing them with more options and, more importantly, more time to make a decision on when to withdraw all of the funds in the Inherited IRA (generally within 10 years). The taxes could then be spread over a 10-year period, while assets continue to earn dividends over that same time period.
  • If the original retirement owner owned a pre-taxed retirement plan (401k) or Traditional IRA, and already reached their Required Beginning Date (RBD), beneficiary(s) of these are required to take annual distributions during the first nine (9) years of the Inherited IRA and close the account in year 10.
  • The earnings (dividends) in your Inherited IRA Savings and/or your Inherited IRA Certificates also grow tax deferred or can be tax-free, pending the Inherited IRA type.
    • Earnings are not reported to the IRS.
    • Taxes are only paid on the funds withdrawn when you are ready to withdraw from the Inherited Traditional IRA, or when mandated to complete a Required Minimum Distribution (RMD) for the year.
    • Withdrawals from Roth Inherited IRAs may be tax-free as long as certain withdrawal requirements are met.
  • Withdrawals from an Inherited IRA may avoid the IRS early withdrawal penalty if you’re under age 59½.
  • There are currently no annual service fees on EECU Inherited IRAs.
  • Another benefit of any IRA type is you always have access to distribute your assets at any time.

Important Disclosure: This information is for educational purposes and does not constitute tax or legal advice. Tax laws are complex and subject to change. EECU recommends consulting with a qualified tax advisor to determine your eligibility and the best IRA strategy for your specific financial situation.